Temporale antagelser i finansiel risikostyring: Udfordringer og muligheder

Henrik Jensen

Student thesis: Master thesis


This thesis explores the temporal assumptions in financial risk management and analyzes how the constraints inherent in these can be transcended. The fundamental challenge is that the assumptions of economic theories are limiting the kinds of phenomena that can be adequately analyzed. Much of economic and financial theory is working within a static framework, where the fundamental correlations and causal chains never change. This temporal assumption makes it possible to extrapolate past events into the future. At the same time as this is made possible, the kinds of phenomena that can be understood within this framework are limited to those that can be characterized as static. The domain of application of these risk management model are thus more restricted than generally thought. In order to overcome this shortcoming this thesis argues that the traditional risk management model must be complemented by scenario based risk analyses. This approach builds on a different set of temporal assumptions and is as such not subject to the same criticisms that are raised against traditional risk management methods. The approach of the thesis is theoretical. The analyses are done through a critical examination of financial risk management models. This critical examination is done in two ways. First through an analysis of the internal tension between different theoretical elements in modern financial risk management, that is, in the capital asset pricing model (CAPM) and portfolio theory. Secondly, the temporal assumptions are characterized and discussed from a subjectivist position outside mainstream financial theory. This position subsequently serves as grounding for the complementary risk analysis approach, scenario based risk analysis. In order to analyze the impact of the temporal assumption, the role of assumptions in economic theory in general is discussed with outset in Friedman’s (1953) the Methodology of Positive Economics. This thesis argues that, contrary to the common reading of Friedman, assumptions do play an important role in our judgment of a theory’s domain of application. The fundamental challenge of this thesis is how qualified risk management should be done in situations of great uncertainty, where our knowledge is scarce and our forecasts of the future not reliable. Estimates and imagination play a huge role in this process, the same does our knowledge of causal chains and correlations. Even though a single future cannot be forecasted, it is still possible to imagine multiple potential futures, analyze their impact, and asses our own prospects.

EducationsMSc in Philosophy, (Graduate Programme) Final Thesis
Publication date2012
Number of pages87