Risk models are models of uncertainty, engineered for some purposes.
They are "educated guesses and hypotheses" assessed and valued in terms
of well-defined future states and their consequences. They are
engineered to predict, to manage countable and accountable futures and
to provide a frame of reference within which we may believe that
"uncertainty is tamed". Quantitative-statistical tools are used to
reconcile our information, experience and other knowledge with
hypotheses that both serve as the foundation of risk models and also
value and price risk. Risk models are therefore common to most
professions, each with its own methods and techniques based on their
needs, experience and a wisdom accrued over long periods of time.
This book provides a broad and interdisciplinary foundation to
engineering risks and to their financial valuation and pricing. Risk
models applied in industry and business, heath care, safety, the
environment and regulation are used to highlight their variety while
financial valuation techniques are used to assess their financial
consequences.
This book is technically accessible to all readers and students with a
basic background in probability and statistics (with 3 chapters devoted
to introduce their elements). Principles of risk measurement, valuation
and financial pricing as well as the economics of uncertainty are
outlined in 5 chapters with numerous examples and applications. New
results, extending classical models such as the CCAPM are presented
providing insights to assess the risks and their price in an
interconnected, dependent and strategic economic environment. In an
environment departing from the fundamental assumptions we make regarding
financial markets, the book provides a strategic/game-like approach to
assess the risk and the opportunities that such an environment implies.
To control these risks, a strategic-control approach is developed that
recognizes that many risks resulting by "what we do" as well as "what
others do". In particular we address the strategic and statistical
control of compliance in large financial institutions confronted
increasingly with a complex and far more extensive regulation.
