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FRM - Schweser - Topic 7
Risk Management Failures - what are they and when do they happen?
4
Finance
Professional
04/10/2010
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Term
What are the 3 main tasks involved in the role of risk management?
 Definition

- Assess all risks faced by the firm

 

- Communicate these risks to risk-taking decision makers

 

- Monitor and manage these risks
Term
The process of risk management can fail if one or more of the following events occur:
 Definition

- Not measuring known risks correctly

- Not recognising some risks

- Not communicating risks to top management

- Not monitoring risk adequately

- Not using the appropriate risk metrics
Term
What are the 3 forms of failing to take known and unknown risks into account?
 Definition

1 - Ignoring a risk that is known

 

2 - Knowing about a risk, but failing to properly incorporate it into risk models

 

3 - Failing to discover all risks
Term
What does the Heisenberg Principle say?
 Definition
increasing the certainty for one variable may introduce uncertainty for another variable
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