Journal of Risk

Fallacies about the effects of market risk management systems

Philippe Jorion


This paper takes another look at allegations that risk management systems have contributed to increased volatility in financial markets, with the particular example of the summer of 1998. The analysis starts with a review of the literature on the effect of financial engineering on financial markets. The evidence is that financial innovations reduce volatility in financial markets, but they seem to be systematically blamed for the opposite effect. The paper also provides new evidence on the potential effect of VAR-based market risk charges for commercial banks under the Basel Accord. I show that VAR-based regulatory capital charges cannot plausibly be blamed for the volatility of 1998 due to their very slow response to market movements.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here