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| Financial Risk Measurement for Financial Risk Management |
Financial risk management is a huge eld with diverse and evolving components, as evidenced by both its historical development (e.g., Diebold (2012)) and current best practice (e.g., Stulz (2002)). One such component { probably the key component { is risk measurement, in particular, the measurement of financial asset return volatilities and correlations (henceforth \volatilities").
Crucially, asset-return volatilities are time-varying, with persistent dynamics. This is true across assets, asset classes, time periods, and countries, as vividly brought to the fore during numerous crisis events, most recently and prominently the 2007-2008 financial crisis and its longlasting aftermath.
The end of financial econometrics devotes considerable attention to time-varying volatility and associated tools for its measurement, modeling, and forecasting. In this chapter, we suggest practical applications of the new \volatility econometrics" to the measurement and management of market risk, stressing parsimonious models that are easily estimated.
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Our ultimate goal is to stimulate dialog between the academic and practitioner communities, advancing best-practice market risk measurement and management technologies by drawing upon the best of both.
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