From the May 2008 issue of Treasury & Risk magazine

Bringing Out the Quant in All of Us

Risk management owes a lot to the numbers crunchers. Those whiz-kids sit in the back rooms building complicated models for the managers upfront who make the allocation strategy decisions. Less dazzling minds couldn't imagine massaging hundreds of thousands of numbers--including foreign exchange rates, interest rates, equities and other financial considerations--to come up with accurate and clear readings of investment risk. Until recently.

RiskMetrics Group is among a new breed of risk companies to offer a product that makes instant crunchers, and even quants, out of anyone. The fourth, and latest, upgrade to flagship RiskManager lets portfolio managers, risk managers, treasury officials at big companies and even regulators model all positions across every portfolio in a single platform.

Considering that RiskManager evaluates more than 750,000 factors--such as interest rates, share prices, foreign exchange movement, credit spreads and commodities prices updated on a daily basis--there's little chance a non-quant could manipulate the massive data without the latest interoperability technology. That includes dashboards that let senior managers read capsule summaries that could include top exposures, sensitivities and risks. "This gives a risk perspective to everyone at every level of the equation to factor in a way that speaks directly to their investment process," says Gregg Berman, co-head of RiskMetrics risk management unit. This matters especially in times of extreme volatility. "Communications across key stakeholders becomes increasingly important in periods of market stress," says Jorge Mina, co-head, along with Berman, of the risk business. "As such, users need access to time risk information, backed by a flexible and robust reporting infrastructure."

RiskManager lets users run "what if" analyses, design stress scenarios, run ad-hoc analyses on demand, produce custom reports and automate overnight batch processing, according to Berman. Moreover, "the application is transparent in its modeling and risk calculations, empowering clients to better understand modeling assumptions."

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