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| Author: | Millo, Y. MacKenzie, D. |
| Title: | The usefulness of inaccurate models: towards an understanding of the emergence of financial risk management |
| Journal: | Accounting, Organizations and Society
2009 : JUL, VOL. 34:5 p. 638-653 |
| Index terms: | financial models risk management financial risk financial markets |
| Language: | eng |
| Abstract: | The study argues that the remarkable success of current financial risk management methods should be attributed primarily to their communicative and organizational usefulness and less to the accuracy of the results they produced. The paper traces the intertwined historical paths of financial risk management and financial derivatives markets and analyses the social, political and organizational factors that underpinned the exponential success of the applications based on the Black-Scholes-Merton options pricing model, spanning from the late 1960s to the early 1990s. It is shown, based on primary documents and interviews, how financial risk management became part of central market practices and gained reputation among the different organisational market participants. Finally, the events in the aftermath of the market crash of October 1987 showed that practical usefulness of financial risk management methods overshadowed the fact that when financial risk management was critically needed the risk model was inaccurate. |
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