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Risk Management Beyond VaR How financial risk management went wr ong and wh at to do about it

After more than twenty years of detailed development of risk measurement and management techniques, it is essential to ask why the Global Financial Crisis took so many of us by surprise. A central reason is that distributional analysis, which is the foundation for concepts such as value-at-risk, was too often treated as a fully comprehensive basis for measuring risk. In fact, short-term market volatility is one important aspect of risk, but it may actually be a misleading indicator of a system's vulnerability to major systemic crises.

This paper discusses a number of diverse considerations that risk managers need to incorporate into their thought processes and recurring procedures if they are to fulfill their role more effectively in the future.