Horizon problems and extreme events in financial risk management.(Proceedings of a Conference)

I. INTRODUCTION

There is no one "magic" relevant horizon for risk management. Instead, the relevant horizon will generally vary by asset class (for example, equity versus bonds), industry (banking versus insurance), position in the firm (trading desk versus chief financial officer), and motivation (private versus regulatory), among other things, and thought must be given to the relevant horizon on an application-by-application basis. But one thing is clear: in many risk management situations, the relevant horizons are long--certainly longer than just a few days--an…