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Risk Management System (risk + management_system)
Selected AbstractsRisk management lessons from Long-Term Capital ManagementEUROPEAN FINANCIAL MANAGEMENT, Issue 3 2000Philippe Jorion The 1998 failure of Long-Term Capital Management (LTCM) is said to have nearly blown up the world's financial system. For such a near-catastrophic event, the finance profession has precious little information to draw from. By piecing together publicly available information, this paper draws risk management lessons from LTCM. LTCM's strategies are analysed in terms of the fund's Value at Risk (VAR) and the amount of capital necessary to support its risk profile. The paper shows that LTCM had severely underestimated its risk due to its reliance on short-term history and risk concentration. LTCM also provides a good example of risk management taken to the extreme. Using the same covariance matrix to measure risk and to optimize positions inevitably leads to biases in the measurement of risk. This approach also induces the strategy to take positions that appear to generate ,arbitrage' profits based on recent history but also represent bets on extreme events, like selling options. Overall, LTCM's strategy exploited the intrinsic weaknesses of its risk management system. [source] The Relationship between Internal Audit and Senior Management: A Qualitative Analysis of Expectations and PerceptionsINTERNATIONAL JOURNAL OF AUDITING, Issue 3 2006Gerrit Sarens This study, based upon Belgian case studies, provides a qualitative assessment of the relationship between internal audit and senior management, analysing the expectations and perceptions of both parties. We found that senior management's expectations have a significant influence on internal audit and that internal audit, generally, is able to meet most of these expectations. Senior management wants internal audit to compensate for the loss of control they experience resulting from increased organisational complexity. Senior management expects internal audit to fulfil a supporting role in the monitoring and improvement of risk management and internal control, and wants them to monitor the corporate culture. Furthermore, they expect internal audit to be a training ground for future managers. On the other hand, internal audit expects senior management to take the first steps in the formalisation of the risk management system. They are looking for senior management support, as this benefits their overall acceptance. [source] TRANSFORMING ENRON: THE VALUE OF ACTIVE MANAGEMENTJOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2001Vince Kaminski Soon after Enron was formed as a regulated gas pipeline company in 1985, economic events forced a dramatic reorganization of the company. The result was the creation of an unregulated energy trading operation whose mission was to capitalize on opportunities arising from the deregulation of the natural gas market The initial form of the new business was that of a "gas bank" in which Enron became an intermediary between buyers and sellers of gas, locking in the spread as profit. Since there was no source of liquidity to the market, Enron had to develop its own risk management system. Furthermore, the need to respond quickly to rapidly changing market conditions required that Enron flatten its organizational structure and hire new people whose skills were better suited to the new decentralized organization. The focus of the new Enron accordingly became human and intellectual capital, not physical assets. Employees were encouraged to move about the firm to staff new business ventures. And in what may well be a unique feature in corporate America, Enron's top management today uses its human capital flows to guide its allocations of financial capital. Other aspects of the Enron model include attempts to capitalize on the option (as opposed to current DCF) value of assets, recognition of the value of networks in adding value to trading platforms, and the use of mark-to-market accounting for business transactions as a means of ensuring transparency and promoting timely decision-making. [source] Evaluation of correlation forecasting models for risk managementJOURNAL OF FORECASTING, Issue 7 2007Vasiliki D. Skintzi Abstract Reliable correlation forecasts are of paramount importance in modern risk management systems. A plethora of correlation forecasting models have been proposed in the open literature, yet their impact on the accuracy of value-at-risk calculations has not been explicitly investigated. In this paper, traditional and modern correlation forecasting techniques are compared using standard statistical and risk management loss functions. Three portfolios consisting of stocks, bonds and currencies are considered. We find that GARCH models can better account for the correlation's dynamic structure in the stock and bond portfolios. On the other hand, simpler specifications such as the historical mean model or simple moving average models are better suited for the currency portfolio.,,Copyright © 2007 John Wiley & Sons, Ltd. [source] "Qualitative" Bankenaufsicht ,"Königsweg" der Regulierung?PERSPEKTIVEN DER WIRTSCHAFTSPOLITIK, Issue 3 2000Stephan Paul Banking regulation in the twenty-first century is at the crossroads. The article discusses the question whether the supervisory review of bank risk management systems is superior to the minimum capital requirements in traditional style. It points out the serious problems of both ways , especially the first one, which was preferred by the Basle Committee of Banking Supervision in its proposal "A new capital adequacy framework" (June 1999). [source] | |||||||||||||||||||