Understanding the Financial Crisis:

Did Mathematical Models Fail?






Systemic issues in financial regulation: a new generation of mathematical models or better understanding of what we’ve got?  


Patrick Honohan (TCD Department of Economics)  



Competing interpretations of risk management failures in the crisis assign blame alternatively to distorted incentive structures for financiers or flawed mathematical models of risk. A synthetic view recognises both of these as  endogeneous.  Improved systemic risk management for future benefit from a new generation of models of  endogeneous systemic risk, but needs to be based on a holistic view which encompasses bounded rationality and political process as well as narrowly financial risk.