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Coherent Measures & Credit Risk

Coherent Measures & Credit Risk

Derivatives
“Weapons of mass destruction”

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“Simple” Questions

State of the Enterprise Risk Market
(Banks) Mapped to Products

State of the Enterprise Risk Market
(Asset Managers) Mapped to Products

State of the Enterprise Risk Market
Mapped to Regulations

Slide 16

The Regulatory Environment

Use test to qualify for waiver

Basel II Highlights

Basel II ..some quotes

Basel II ..some quotes

Basel II…
A journey rather than an event

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Imagine…..

Architecture and Risk Management

Debugging an Architecture

Guggenheim at Bilbao

Risk Computation Needs

Risk Computation Needs
e.g. Counterparty credit exposures

"Monolithic"

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An example of the complexities

An example of the complexities

The “Cube”

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MtFCube Mapping


     Mapping to Basis Instruments

Maps for Equities

A Swap Portfolio

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"Consistent Measurement of Earnings and..."

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Only a few scenarios are relevant!

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Dynamic Portfolios

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Funding Liquidity Risk

Slide 51

At the end of the day….

Simulation (the Upside)

Simulation (the Downside)

Decomposing a Risky Decision


Risk-Adjusted Performance


 The “Put / Call” Efficient Frontier


Risk-Adjusted Performance


 The “Put / Call” Efficient Frontier


 Dual of “Put / Call” Trade-off


 Dual of “Put / Call” Trade-off


 Complementarity


    Complementarity


   Modelling Liquidity

The Put/Call Efficient Frontier

A Portfolio in the Future

Replication

Single Period, Multi State


“Regret” Based Efficient Frontier

A “Nobel” Quote

Images of a Portfolio Inverse problems

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Value-at-Risk (VaR)

Portfolio Compression

Compressed Portfolio

Compression Results

"The End"