A Perspective on Risk

Abstract

The past decade has demonstrated convincingly that virtually nobody in today’s economy is immune or insulated from financial risks. The headlines are replete, on a daily basis, with stories regarding the subprime mortgage crisis, the U.S. fiscal situation, the European sovereign debt crisis, and the rising price of raw materials. While these situations have resulted in the well-publicized failure of several significant financial institutions in recent years, the impact often extends down to individual consumers and taxpayers. This article is intended to take a step back and examine the nature of financial risks in the modern world … our “perspective on risk.” Along the way, we will discuss some of the major sources of risk and various measures of such risk, or “risk barometers.”