Repricing Risk

Students of Introductory Economics classes are taught that when supply equals demand there is equilibrium. When securities trade each day, each transaction is at equilibrium. If traders believe that a security’s price reflects all that is known about the security, plus the uncertainty factor, risk is therefore “repriced” each and every trade, not just in times of duress.

Something is Rotten in the state of Denmark

Television Reporters and market pundits on television seem have recently been gravitating towards this expression – “repricing risk,” which itself suffers massive ED (it is too soft). It is inadequate in explaining what has happened to Portfolio Managers’ risk models. Using such “soft” language shys away from holding Traders and PM’s accountable and responsible for their risk management or lack thereof. It’s like talking about a sniffy nose, instead of the fever. Humans program computer models, therefore the humans are responsible. VaR models do not take into account things that managers don’t consider.

Something Wicked This Way Comes

The phrase “repricing risk” foreshadows how VaR models themselves are at risk. Use them at your own discretion, but know that when you hear “repricing risk,” you may be hearing a foreshadowing that something else is at risk: your career. You can’t fire the computer.