New Models for Managing Risks

New areas of research create a framework for understanding markets and risk management.

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The most interesting — and potentially promising — reaction to the current financial crisis has been the clamoring to fix, or even replace, one of the basic tenets underlying our understanding of economics, markets and risk management: the Efficient Market Hypothesis. The problems with the assumptions made by the EMH — which is the notion that market prices incorporate information instantaneously and rationally — have been well documented.

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