Topic: ?Eyes wide shut: Are finance managers looking but don?t see??

As financial markets become more integrated and competition increases, financial institutions need a clearer understanding of
the risks they are taking to protect the assets of their companies. It is the risk manager’s job is to foster and develop
system-wide risk awareness. However, when first introduced to risk management, many finance managers feel that there is
something “macho” about seeking risk and that formal risk management is a sign of weakness. Clearly, many have survived
financial ruin simply by good luck and sheer guts. With your eyes shut at least you won’t see the risk until it hits you.
Then, it is over suddenly ?
Instigated by Basel II, financial institutions are taking a clean look at managing market risk, credit risk and operational
risk. In the process, they are redefining the role of risk management in achieving firm objectives and, ultimately,
increasing shareholder value. Their main goal is not to eliminate uncertainty, but rather to be proactive in assessing and
managing risk for their own advantage. However, the understanding and implementation of formal risk management is extremely
inconsistent across institutions.
As a major risk measurement tool, Value at Risk (VaR) is the minimum loss that you can expect with a given probability
defined as the confidence level, over a given period of time. Such risk estimates are often based on simplifying assumptions
such as the normality assumption, stationarity of returns and validity of historical data. However, asset returns do not
conform to such simple assumptions, as exemplified by fat-tailed distributions, long-term autocorrelations in returns and
structural breaks. This raises the concern whether finance managers have been applying these risk models with their eyes wide
shut.

Task:
Your task is to write an essay for The Australian Financial Review with the following title:
“Eyes wide shut: Are finance managers looking but don’t see?”