testing

Risk can be separated into two types - exogenous and endogenous. Exogenous risks are the ones that we most often discuss and model, but endogenous risks may be the most dangerous because they are not easy to describe or measure.  Exogenous risks are those associated with news - the fundamentals that drive markets. They can be the latest announcement from the Fed, or the new employment numbers. The risk from these announcements will be unanticipated, but the impact is often well recognized. These risks are the measurable or explained volatility in markets. These risks will be related to model structures. The behavior of traders and investors are well-defined and rational with respect to these risks. These risks help to formulate expectations because the models describing the economy are known. You could call the battle to measure and assess these risks as a game against nature.  Endogenous risks are the risks derived from the trading in markets. These risks are the unexplained ...