| Value-at-RiskIn 1988, with increasing stock market activity, JP Morgan saw the motivation to develop an all-in-one solution -- a sole number that can cover financial risk in its whole complexity, yet is easy to interpret. |
|
| Alpha Generation and Risk Smoothing using Volatility of VolatilityWhether or not you believe in the efficient market hypothesis, it is difficult to predict market returns, whereas market volatility is clearly forecastable |
|
| Leveraged Etfs: All You Wanted to Know but Were Afraid to AskLeveraged exchange-traded funds present a variety or risks, particularly for buy-and-hold investors. To manage these risks effectively, investors must understand the impact of different factors – including compounding, daily balancing and volatility – on returns. |
|
| How to Estimate and Calibrate Analytical VaR for Interest Rate RiskSince analytical value-at-risk (VaR) is easier to understand and to apply than Monte Carlo VaR, the hunt for analytical VaR methodologies is worthwhile, particularly if they can compete with the complexities of Monte Carlo modeling.This article demonstrates how analytical interest rate risk VaR can be estimated using principal component analysis (PCA). |
|
| To VaR Is HumanRisk management is relatively simple in its essence: What is the probability of an event occurring, and, if it happens, how badly will it hurt? However, if we consider how we estimate probabilities and losses, the answers to these seemingly simple questions become complicated very quickly. |
|
| The US Housing Crash: Model or Management Failure?Executives who were quick to blame “faulty” risk models for their inability to predict the real estate downturn need to take a closer look in the mirror. Many factors have contributed to the recent financial crisis. |
|
| Transition Matrices: Filling a Risk Management GapThe recent financial crisis underlined the inadequacy of existing models in the face of changing market conditions; many managers found that the models they were using weren't varying with the evolving conditions and that the gaps they saw could be reduced if market and economic conditions were somehow integrated in the models. |
|
| A Model DefenseThere's one area where quants have an edge over legislators, regulators and financial executives: they remember. They embed their lessons in equations and computer code. |
|
| The March Toward a Consolidated Risk Statement Today, a confluence of technologies has the potential to bring transparency to the arithmetic of uncertain quantities -- i.e., probability distributions -- with beneficial consequences for numerous industries. |
|
| Market Turbulence Raises Questions about Future of Risk ModelsOne of the strengths of risk models is supposed to be their ability to use a limited range of parameters to predict events. However, the reliability of these mathematically-driven models has been called into question by the subprime turmoil, and regulators are now eager to rationalize models and to develop stronger risk management policies. |
|
| Repairing a Defective DisciplineDouglas W. Hubbard has produced a timely reminder that risk managers from every industry must stop and question their effectiveness. Can we really say our risk management methods are working? |
|
| Pros and Cons of Different CLO ModelsThanks to a lack of liquidity in the secondary markets, many companies have been left holding a portfolio of structured products, including collateralized loan obligations (CLOs). Decreased liquidity, combined with recent accounting rule changes, has prompted a number of companies to develop models to help them determine the fair value of these securities. |
|
| The Public-Private Investment Program: A Flawed IdeaThe Treasury’s PPIP is expected to provide banks with an opportunity to get rid of some toxic assets. However, there are still doubts about the plan’s purported ability to improve price discovery for these troubled securities. |
|
| The Art and Science of Today's Risk ManagementAs we move forward to revamp our risk management, we need to break away from the current failed framework and culture. |
|
| VAR versus Put OptionWhat are the real differences between using the VAR approach to capital allocation and using the put option approach? |
|
| A Framework for Portfolio OptimizationSince Harry Markowitz published his seminal work on portfolio optimization in 1952, it has become standard practice in the asset management industry to construct portfolios that are “optimal” in some sense. Indeed, it is natural for portfolio managers to want to maximize return for a certain level of risk that they assume. |
|
| The Credit Crisis: Ideas on What Went Wrong, and a Call for More Fundamental AnalysisFundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. |
|
| Opening the Vault to Risk Disclosures DataUnless you're in the business, you probably don't have time to learn what you need to translate the financial note into a sophisticated understanding of the firm's risk strategy. |
|