Risk Measurement on Demand: Complexity, Volatility and Regulatory Uncertainty Executive Summary Global investment banks and institutional investors are in the business of taking calculated market and credit risks. Calculated risk means having a nimble risk infrastructure that can measure market and credit risk within new products and in rapidly changing market environments. The transformation of the over-the-counter (OTC)

It is also critical to recognize that regulatory reform is only part of the equation. It focuses on risk measurement across centrally cleared products. Beyond this comparatively vanilla territory lies the more complex and exotic structured products. Evaluating these products’ risk profiles will require the use of more sophisticated, flexible risk-measurement tools.

Under these conditions, firms today approach risk management with the awareness that there are significant opportunity costs associated with their inability to react swiftly to customer demands and regulatory requirements. As a result, risk management is no longer viewed as a cost center but as a necessary cost of doing business.

With models improved and the fastest hardware deployed, other techniques must be used to speed up calculations. Risk officers, portfolio managers, quants and traders on both the buy and sell side have always been aware of the potential pitfalls that can arise if OTC derivatives portfolios are improperly marked. Management of model risk is important across all of these roles. Marking to model in real time is certainly an improvement over daily batch jobs. But that begs the question, how can calculations that once took days to be completed, now take mere hours? Some of the solutions are obvious, others more ingenious.

Running existing risk processes on top of new data only takes us a half-step forward. Today’s markets continue to move faster, and risk processes need to pick up the pace to keep up. To do so requires thinking about risk modeling in new, more advanced ways. Using tools to eliminate extra computation cycles by only running the parts of a model calculation that have changed is just one way that firms are trying to both speed up and simplify the risk process.

The TABB Group Vision Note Risk Measurement on Demand: Complexity, Volatiltity, and Regulatory Uncertainty focuses on how the most sophisticated toolkits available today from can help cultivate a more efficient portfolio and enterprise risk management process. These solutions can streamline the risk management process by integrating essential analytics into one user-friendly, customizable and intuitive interface.