Financial Literacy

The Climate Dictionary is an initiative of the United Nations Development Programme (UNDP) aimed at providing people worldwide with a simplified guide to understand climate change. The Dictionary (first published Aug 2023) seeks to bridge the gap between complex scientific jargon such as present in the IPCC publications and other scientific bodies and the public.

The Role of Open Risk Manual Taxonomies

A taxonomy is the categorization of concepts. It can be a very useful tool in supporting effective knowledge management. Fundamentally a taxonomy is a scheme of classification, typically a hierarchical classification, in which things or concepts are organized into groups or types of increasing specificity.

Offline versus Online

In computer technology and telecommunications, online indicates a state of connectivity over digital networks, and offline indicates a disconnected state. Both states have many sub-divisions. For example the type online access varies enormously according to the bandwidth and latency of connections. Similarly, people may be “offline” as not having network access or completely unplugged, as in not having access or using any electronic device.

According to wikipedia Conflation is the merging of two or more sets of information, texts, ideas, opinions, etc., into one, often in error. This may lead to misunderstandings, as the fusion of distinct subjects might obscure analysis of relationships which are emphasized by contrasts. Why does conflation happen in the first place? There are several possible factors which in some contexts may be co-existing and overlapping:

9 Things they do not tell you about Risk Management

1. Risks don’t fall from the Sky. They are generated by other People

Informal Risk Management has been practiced by individuals since time immemorial. This is the domain of intuitive decision-making, assessing a situation on the spot and taking immediate action to avoid obvious risks.

Risk, Randomness, Uncertainty and other Ambiguous Terms

Uncertainty versus Risk is a popular discussion topic among risk managers, especially after major risk management disasters. The debate can get really hairy and drift into deep philosophical areas about the nature of knowledge etc. Yet the significance of having an as clear as possible language toolkit around these terms should not be underestimated. Practical risk management typically shuns too deep excursions into the meaning of things, yet that is not quite compatible with the use of sophisticated methods and tools (such as a Risk Model ) that assumes an understanding of the scope and limitations of “knowledge”.

Is the size of global debt truly “astronomical”?

The notion of astronomical numbers and figures is quite frequently seeping in everyday language when large quantities of something are encountered in “normal” life. The strict definition of astronomical is obviously something of, or relating to, astronomy and astronomical observations but in common usage it also denotes something enormously or inconceivably large. This is, of course, because astronomical figures are inconceivably large!

Risk Management will not be the same going forward: too much is at stake

The summer is over in the Northern Hemisphere - and what an unusual summer has it been! Worldwide the implications and challenges of adjusting to a Covid-19 pandemic are still a major issue, affecting individuals, companies and governments.

What is Risk Compensation?

Risk Compensation is a behavioral model of human attitudes towards risk which suggests that people might adjust their behavior in response to the perceived level of risk. It follows that, depending on the strength of the effect, that it might counteract and even annul the impact of risk mitigation, if the updated attitude and behavior modifies the actual underlying risk

A survey of existing definitions of risk

When looking up the meaning of Risk we are confronted with a surprising situation. There is no satisfying and authoritative general purpose one-line definition that we can adopt without second thoughts. Let us start with the standard dictionary definitions:

A new logo for the Open Risk Manual

We have updated the logo for the Open Risk Manual.

The new logo aims to make more explicit both the inspiration that the Open Risk Manual project draws from the trail-blazing Wikipedia initiative (and increasing collection of associated Wikimedia projects) and the reliance on the open source ecosystem of software and tools, including the mediawiki software and the important semantic mediawiki extension.

Limit frameworks are fundamental tools for risk management

A Limit Framework is a set of policies used by financial institutions (or other firms that actively assume quantifiable risks) to govern in a quantitative manner the maximum risk exposure permitted for an individual, trading desk, business line etc.

Why do we need limit frameworks? A limit framework is expressing in concrete terms the Risk Appetite of an institution to assume certain risks. The operational assumption is that staying within the risk limits defined by the framework is consistent with the degree of risk the firm is willing to accept while pursuing its business model. Limit frameworks offer the necessary flexibility demanded both by risk takers (the persons within the firm that undertake or underwrite risky projects) and the variable market environment with its ever evolving set of risks and opportunities.

Eternal Risk Management One-Liners

A single line is sometimes the only thing that separates you from disaster

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Do you know of any good one-liners that saved the day at one point?

(Update May 2017) We moved the list to the Open Risk Manual for easier editing and contributions

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Send us your favorite one-liner to include in the list. Please indicate what type of attribution you prefer (anonymous, nickname, full name etc.)

Accounting probably would not count among the more glamorous of professions. The reasons for that status and whether it is justified are beyond the scope of this brief commentary.

What is interesting to note, though, is that the relative attractiveness of accounting is arguably improving, driven by a number of systemic societal developments:

The Atlas of Bad Risk Management

The Atlas was discovered recently in archaeological work studying pre-crisis civilizations. Despite the obvious wear and tear, all key risk failure areas have been preserved. We note the remarkable diversity of organizational forms and economic structures. Most interestingly, there is even an uncharted territory that was rumored to be inhabited by black swans.

What Inka quipus teach us about data management

Chances are that your knowledge of ancient Peruvian culture is a bit rusty. Maybe you have some vague high-school memories of an extensive but backward empire that was conquered and then asset-stripped by a handful of Spanish conquistadores. Or maybe your best preserved memory is the excitement of reading von Daniken’s speculations that the Nazca lines are extraterrestrial spaceports. But unless you happened at some point later in life to hear about the work of Prof. Urton or his collaborators, most likely you have no idea what a quipu is (see image above).

The periodic table of risk elements

You know the periodic table of elements, even if you flunked your science courses! It is the large colorful and blocky table that hanged on every school’s classrooms before becoming yet another mobile app. The periodic table is one of the early and iconic achievements of science. It lists all the pure chemical elements found in nature, the building blocks of all possible material substances. Each block contains a set of numbers that unambiguously characterizes each element and a single or two letter abbreviation for each: H for Hydrogen, He for Helium and so forth, going on for over a hundred different elements. When the periodic table was discovered by Mendeleev (apparently in his dream!) it was an extraordinary realization that the physical world has an underlying order at the microscopic level. In his own words:

A mini course on risk management, its perils and the silver lining

When talking about risk management, it is not very clear what we are talking about in broad terms, definitely not getting clearer when we start getting into the details and it is even not clear how to best use the (possibly flawed) insights we produce.

This page is a summary of a presentation given at the 2014 Autumn TopQuants Meeting, aka, the Open Source Risk Modeling Manifesto.

The dismal state of quantitative risk modeling

The current framework of internal risk modeling at financial institutions has had a fatal triple stroke. We saw in quick sequence: market risk, operational risk, and credit risk measurement failures, covering practically all business models.

In our personal lives, it is the balance between work and life, or the dreadful weight balance. In the professional sphere it might be the balance between debt and equity in the financial industry, or the balance between convenience and citizen privacy in the new tech industry, or the welfare of the many balanced against the property of the few, or finally the geopolitical balance of power of different peoples Balance ensures sustainability as it helps steer away from the risks that lurk at the extremes. It is actually hard to find scenarios in which a balanced approach would not be the optimal way to complete any meaningful journey. Maybe in a world with full visibility and zero risk.