Important Subtleties in Modelling Risk-Appetite and Economic Capital
Why the Way that Banks Use Portfolio Credit Risk Models is Sometimes Naive
As the world's banking and financial systems start to become stressed - there is often a temptation to blame some of the risk models that are used by the banks. In the author's view these models often do have significant shortcomings, and we outline some of these here. However, these problems are often compounded by the way in which these tools are used and missunderstood.