Monitoring Risk While Pursuing High Returns: The Importance of Being Quantitative
“A quantitative model provides a very different insight than a rating,” said Rajan Singenellore, Global Business Manager of Risk & Valuations at Bloomberg. Models are based on objective inputs and usually publicly available information, whereas ratings are based on subjective factors and inside information. Singenellore was speaking about quantitative models as the second part of a two-part webinar presentation “Monitoring Risk While Pursuing High Returns” on March 7, 2013 organized by the Global Association of Risk Professionals (GARP). “A quantitative model lets you understand risk drivers and sensitivities,” he said, such as the effects of input changes on default risk […]
Monitoring Risk While Pursuing High Returns: Who Pays the Piper?
“Rating biases affect how we think about methodologies,” said Elliot Noma, Managing Director at Garrett Asset Management. “A rating agency paid by the issuer will likely give the firm the benefit of the doubt,” whereas a rating agency paid by the investor might want to more stringently evaluate the firm. “Both evaluations have the risk of error” due to bias. Noma was speaking about evaluation of credit risk as part of the webinar presentation “Monitoring Risk While Pursuing High Returns” on March 7, 2013 organized by the Global Association of Risk Professionals (GARP). He began by dividing non-structured credit exposure […]
The Fed, Foreign Banks and Basel III: Part 3. Necessary Complexity?
As the US moves to adopt Basel III, there are regulatory initiatives that are expected to be implemented, said Peter Went, VP, Banking Risk Management Programs, GARP. The Basel Committee has several proposals that are issued for consultation and discussion, including ones that affect liquidity rules, the securitization framework, trading book review, and consistency of risk-weighted assets. Went was the second speaker at a webinar on February 14, 2013, organized by the Global Association of Risk Professionals (GARP) regarding regulatory reform of foreign banking operations (FBOs) in the United States and the implementation of the Basel III framework. (This continues […]
The Fed, Foreign Banks and Basel III: Part 2. Capital Concerns
“Some of the rules are in direct conflict,” said Peter Went, VP, Banking Risk Management Programs, GARP. He was the second speaker at a webinar presented on February 14, 2013 organized by the Global Association of Risk Professionals (GARP) regarding regulatory reform of foreign banking operations (FBOs) in the United States and the implementation of the Basel III framework. The “conflict” refers to rules in the Dodd-Frank Act versus the globally agreed Basel III Accord’s guidelines. Both regulatory attempts apply the G-20 principles on financial regulation (Pittsburgh 2009 summit). The US implementation of the Basel III framework differs from the […]
The Fed, Foreign Banks and Basel III: Part 1. A Long Hard Look
Foreign banking operations (FBOs) in the United States are about to face a whole new set of regulations that may dampen their enthusiasm for US-based operations, according to a February 14, 2013 webinar organized by the Global Association of Risk Professionals (GARP). “The Fed observed over time that US branches were increasingly used to fund the home office operations,” said Charles Horn, partner at Morrison Foerster, who was the first speaker at the panel. Other concerns of the Federal Reserve Board are the increased complexity of FBOs, and “the availability of home country financial resources for branch offices.” The goal, […]
Managing Model Risk: Part 3. Collective Hubris
There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy. – Wm. Shakespeare, Hamlet, Act 1, Scene 5. “We are building the language in which to discuss model risk,” said Boris Deychman, Director of Model, Market and Operational Risk Management at RBS Citizens Financial Group. He drew an analogy with the world of wine experts, who have developed specific vocabulary to talk about aroma and taste. “They don’t say just: this tastes like wine.” Deychman was the third and final speaker of a panel invited by the Global Association of Risk Professionals to discuss […]
Managing Model Risk: Part 2. The Impact of Basel III
“More consideration must be made for regulatory capital changes that focus on small but potentially devastating risks or risk factors,” said Peter Went, VP, Banking Risk Management Programs at GARP. He was speaking about Basel III and its impact on modelling regulatory capital at a webinar on January 29, 2013, organized by the Global Association of Risk Professionals to discuss model risk management. Went mentioned three developments in the Basel III that directly impact capital models and model risk in regulatory capital determination. First, Basel III introduces a risk-invariant leverage ratio of 3 percent in recognition that models may be […]
Managing Model Risk: Part 1. “Models are Always Wrong”
“Models are always wrong,” said Joe Pimbley, Principal at Maxwell Consulting, via webinar on January 29, 2013. He was the first of a panel of three speakers invited by the Global Association of Risk Professionals to discuss model risk, what it is, and how to assess and validate it after the financial crisis. Models are always wrong, Pimbley clarified, because they are only simplifications. “Wrongness” he defined as some type of error or omission that materially impacts the results as understood by the user. A model can be wrong because the meaning of the result differs from that understood by […]
MATLAB for Excel Users: “Discoverability”
When looking for good data analysis tools, many financial professionals turn first to MS Excel which displays numeric data, contains advanced functions, and can be programmed with Visual Basic. A growing number of professionals are turning to MATLAB which has strengths complementary to ordinary spreadsheets. At a webinar on January 15, 2013, Adam Filion, application engineer at MathWorks, showed approximately three hundred audience members how easily features of MATLAB software adapt themselves to rapid analysis of large datasets. In Excel functions, the input is specified as a cell location and the math is hidden. In MATLAB, the interface has a […]
Analytical Tools to Gain Insight and Speed Up Numerical Analysis
“Symbolic computing can be a practical part of the solution to your problem,” said Deepak Ramaswamy, technical marketing manager at Mathworks. On January 8, 2013 he showed about three hundred participants via webinar how they could switch between analytical tools in a Notebook app to numerical analysis of the same problem in the MATLAB interface. He stepped his way through one “classic” and two “real-life” problems: the damped oscillator model; fuel consumption of a rocket-powered car; and kinematics of a double-jointed robot arm. The three problems can be written as systems of Ordinary Differential Equations (ODEs) and this was the […]