Factors
Factors that are found to support systemic risks are:
- Economic implications of models are not well understood. Though each individual model may be made accurate, the facts that (1) all models across the board use the same theoretical basis, and (2) the relationship between financial markets and the economy is not known lead to aggravation of systemic risks.
- Liquidity risks are not accounted for in pricing models used in trading on the financial markets. Since all models are not geared towards this scenario, all participants in an illiquid market using such models will face systemic risks.
Read more about this topic: Systemic Risk
Famous quotes containing the word factors:
“The goal of every culture is to decay through over-civilization; the factors of decadence,luxury, scepticism, weariness and superstition,are constant. The civilization of one epoch becomes the manure of the next.”
—Cyril Connolly (19031974)
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“Girls tend to attribute their failures to factors such as lack of ability, while boys tend to attribute failure to specific factors, including teachers attitudes. Moreover, girls avoid situations in which failure is likely, whereas boys approach such situations as a challenge, indicating that failure differentially affects self-esteem.”
—Michael Lewis (late20th-century)