Financialization as mathematization: The calculative and regulatory consequences of risk management

Nathan Coombs, Arjen Van der heide

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Financialization is commonly understood as a colonisation of the economy by financial actors and logics. However, following Hardie’s 2011 definition of financialization as the tradeability of risk, this chapter addresses changes within the banking sector since the 1980s. A historical sociology of quantitative techniques beginning with the Black-Scholes options pricing formula and running through Value-at-Risk modelling and Collateralised Debt Obligation valuation highlights the calculative and regulatory consequences of financialized finance. The history shows how the Black-Scholes world of risk management allowed large volumes of risk to be removed off banks’ balance sheets and regulatory capital minimized, with deleterious results for financial stability.
Original languageEnglish
Title of host publicationThe Routledge International Handbook of Financialization
EditorsPhil Mader, Daniel Mertens, Natascha van der Zwan
PublisherRoutledge
Chapter29
Pages358-68
ISBN (Print)9781138308213
Publication statusPublished - 13 Feb 2020

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