Dow/risk: grey boxes

Plunging markets have left Wall Street’s risk systems in tatters. No statistical model that crunches historical market data can make sense of a 2,000-plus two-week drop in the Dow Jones Industrial Average, nor of volatility’s rise to over twice its 10-year average. Worse, the models look to have exacerbated the carnage. Firms that set risk limits based on model outputs like measures of «value at risk» are often forced to sell into falling markets. But models are also, to an extent, scapegoats fo...