Graph Analytics: A New Approach to Risk Management
According to the World Economic Forum, “personal data is becoming a new economic asset class, a valuable resource for the 21st century that will touch all aspects of society.” The New York Times likens big data to a resource like crude oil. What, then will extract the useful component from the raw data? What reaction vessel will synthesize new things from the raw data? Cray, the supercomputer company, has a spin-off data manipulation company, Yarcdata, that specializes in graph analytics. Graph analytics refers to models of complex networks of data in a graphical representation of nodes and edges. “Analysis of […]
Leveraging Risk Analytics. Part 1
“The new risk management role has a dual responsibility: to the organization, and to achieve business goals. When they contradict each other, the business profitability must come first,” said Boaz Galinson, VP and Head of Credit Risk Modeling and Measurement at Bank Leumi. He was the first of two speakers at a GARP webinar on leveraging risk analytics to drive competitive advantage held September 17, 2013. Galinson referred to the Accenture 2011 Global Risk Management Survey of the 400 biggest corporations (including the 40 biggest banks). Of the respondents, 93 percent said that “sustainability of future profitability” was important or […]
Celebrity Gossip for the Finance Nerds
I stumbled on a small piece of paradise when I came across Milevsky’s book, The 7 Most Important Equations for Your Retirement: The Fascinating People and Ideas Behind Planning Your Retirement Income. This book is stuffed with anecdotes about the mathematical geniuses who derived the equations that are central to retirement planning. “Getting an equation named after you isn’t easy. Unlike a building, hospital ward or even a business school, money can’t buy you this sort of fame,” Milevsky writes. “You must own a very sharp set of knives.” In my undergrad days in chemistry, I recall the moment it dawned on […]
Quant Chalkboard: A New Way to Aggregate
The Gumbel copula is the best way to aggregate losses in economic capital, says Yimin Yang, Director of Model Risk and Capital Management Practice at Protiviti, a global consulting firm. “This copula has asymmetrical behaviour and can model fat tails the best” of the numerous copulas he has tried recently. He was speaking at a GARP webinar on August 20, 2013. Yang began by explaining that a copula was a broad class of mathematical function that could be used to describe the joint distribution function between two or more other functions. Such a joint cumulative distribution function (CDF) must determine […]
Quant Chalkboard: Data, Models & Concepts
“People are more likely to believe something that comes as data,” said Joe Pimbley, Principal, Maxwell Consulting, “but you shouldn’t necessarily believe the data.” Pimbley, a lead investigator for the examiner appointed by the Lehman Brothers bankruptcy court, addressed financial risk management professionals at a GARP webinar on August 6, 2013. [Ed. Note Click here to read Joe Pimbley – “Why Lehman Brothers Failed When It Did” on Stories.Finance.] Pimbley said that model builders must always look at data with the eyes of a skeptic. With a PhD in physics he is conversant with models devised to predict the “real world” and […]
Financial Shenanigans: Forensic Accounting in Practice
There are ample opportunities for financial shenanigans in North American companies, according to Howard Schilit, founder of Schilit Forensics LLC and author of the classic Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, first published in 1993 and now in its third edition. He led a mid-day seminar on characteristics of poor accounting practices at the CFA Society Toronto downtown offices on May 30, 2013. “Financial shenanigans are not necessarily illegal,” explained Schilit, but they are practices that “are not nice to perpetrate on someone” and could, if unchecked, slip into criminality. Given the extensive subject […]
Global Challenges in Chemicals & Energy: Standardizing & Accelerating R&D
“The iPhone of experimental chemistry” standardizes and simplifies experimental chemistry in a paradigm-shifting manner, according to Michael Schneider, SVP of Chemspeed Technologies, and the holder and author of more than 30 publications and patents. He was delivering a presentation on March 19, 2013, through a webinar organized by Chemical & Engineering News (C&EN). “The iPhone of experimental chemistry” is based on a sleek desk-sized compartment that apportions chemicals in ”1-2-5” money analogously staggered (but in mmoles instead of cents) , ready-to-apply formats. It dramatically simplifies the experimental work in a multitude of “applications” in traditional experimental lab work and/or as […]
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 […]
Mining Microeconomics Using MATLAB
Modelling the economics of an iron ore mine “is a complex task that can be made more reliable,” said David Willingham to a webinar audience on December 5, 2012. Willingham, an application engineer at Mathworks, was demonstrating how a typical mine’s economics could be modelled using MATLAB and then embedded within an Excel spreadsheet. Developing a mine involves significant capital expenditures and long time frames. Willingham aimed to take the audience through a good model that would take into account the microeconomics of a particular mining company, integrated with the macroeconomic environment, such as interest rates and iron ore prices. […]
Managing Risk Beyond Asset Class Diversification
“The ‘new normal’ in asset allocation must be forward-looking and driven by macroeconomics, said Sébastien Page, Global Head of Client Analytics, Executive Vice-President at PIMCO. He was addressing a CFA Society Toronto luncheon on October 15, 2012 in Toronto’s historic National Club. Traditionally, asset allocation focussed on diversifying according to asset class. In the ‘new normal,’ Page recommends diversifying across risk factors. “Think of asset class as simply a container of risk factors,” he suggested. He gave another metaphor in line with the luncheon crowd. “Think of risk factors as components like proteins, carbohydrates, and fats. An asset class would […]