Most importantly, risk management is now information based relying on advanced statistical techniques. So what does putting in place an effective risk management framework involve? And what does it involve in particular for banks? For banks, risk management essentially involves a risk return trade off – minimising risks for a given return or maximising returns for a given level of risk.
I will leave aside the problems connected to the management of duration risk, due to the fact that there might be a mismatch between the duration of companies’ assets and liabilities. Of course, compensation for this risk is also a part of the annuity price.