There appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling. More specifically, current risk models have failed to properly assess the risks associated with large adverse stock price behavior. In this...

We have argued that from the standpoint of a policy maker, the uncertainty of using the average forecast is not the variance of the average, but rather the average of the variances of the individual forecasts that incorporate idiosyncratic risks. With a slight reformulation of the loss function...