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jerryking : risk-analysis   3

At BlackRock, a Wall Street Rock Star’s $5 Trillion Comeback - The New York Times
SEPT. 15, 2016 | NYT | By LANDON THOMAS Jr.

(1) Laurence Fink: “If you think you know everything about our business, you are kidding yourself,” he said. “The biggest question we have to answer is: ‘Are we developing the right leaders?’” “Are you,” he asked, “prepared to be one of those leaders?”

(2) BlackRock was thriving because of its focus on low-risk, low-cost funds and the all-seeing wonders of Aladdin. BlackRock sees the future of finance as being rules-based, data-driven, systematic investment styles such as exchange-traded funds, which track a variety of stock and bond indexes or adhere to a set of financial rules. Fink believes that his algorithmic driven style will, over time, grow faster than the costlier “active investing” model in which individuals, not algorithms, make stock, bond and asset allocation decisions.

Most money management firms highlight their investment returns first, and risk controls second. BlackRock has taken a reverse approach: It believes that risk analysis, such as gauging how a security will trade if interest rates go up or down, improves investment results.

(3) BlackRock, along with central banks, sovereign wealth funds — have become the new arbiters of "flow.“ It is not about the flow of securities anymore, it is about the flow of information and indications of interest.”

(4) Asset Liability and Debt and Derivatives Investment Network (Aladdin), is BlackRock's big data-mining, risk-mitigation platform/framework. Aladdin is a network of code, trades, chat, algorithms and predictive models that on any given day can highlight vulnerabilities and opportunities connected to the trillions that BlackRock firm tracks — including the portion which belongs to outside firms that pay BlackRock a fee to have access to the platform. Aladdin stress-tests how securities will respond to certain situations (e.g. a sudden rise in interest rates or what happens in the event of a political surprise, like Donald J. Trump being elected president.)

In San Francisco, a team of equity analysts deploys data analysis to study the language that CEOs use during an earnings call. Unusually bearish this quarter, compared with last? If so, maybe the stock is a sell. “We have more information than anyone,” Mr. Fink said.
systematic_approaches  ETFs  Wall_Street  BlackRock  Laurence_Fink  asset_management  traders  complacency  future  finance  Aladdin  risk-management  financiers  financial_services  central_banks  money_management  information_flows  volatility  economic_downturn  liquidity  bonds  platforms  frameworks  stress-tests  monitoring  CEOs  succession  risk-analysis  leadership  order_management_system  sovereign_wealth_funds  market_intelligence  intentionality  data_mining  collective_intelligence  risk-mitigation  rules-based  risks  asset_values  scaling  scenario-planning  databases 
september 2016 by jerryking
The need for an analytical approach to life
November 3, 2013 | FT.com | By Rebecca Knight.

Risk analysis is not about predicting events; it’s about understanding the probability of possible scenarios, according to Elisabeth Paté-Cornell, professor at the Stanford School of Engineering.
In her latest research, she argues that expressions such as “black swan” and “perfect storm”, which have become journalistic shorthand when describing catastrophes, are just excuses for poor planning. Managers, should “think like engineers” and take a systematic approach to risk analysis. They should figure out how a system works and then identify the probable ways in which it could fail.
So does a black swan event exist?
The only one that I can think of is the Aids epidemic. In the case of a true black swan, you cannot anticipate it.
And what about ‘perfect storms’?
A combination of rare events is often referred to as a perfect storm. I think people underestimate the probability of them because they wrongly assume that the elements of a perfect storm are independent. If something happened in the past – even though it may not have happened at the same time as something else – it is likely to happen again in the future.
Why should managers take an engineering approach to analysing the probability of perfect storms?
Engineering risk analysts think in terms of systems – their functional components and their dependencies. If you’re in charge of risk management for your business, you need to see the interdependencies of any of the risks you’re managing: how the markets that you operate in are interrelated, for example.
You also need imagination. Several bad things can happen at once. Some of these are human errors and once you make a mistake, others are more likely to happen. This is because of the sequence of human error. When something bad happens or you make a mistake, you get distracted which means you’re more likely to make another mistake, which could lead to another bad event. When you make an error, stop and think. Anticipate and protect yourself.
How can you compute the likelihood of human error?
There are lots of ways to use systems analysis to calculate the probability of human error. Human errors are often rooted in the way an organisation is managed: either people are not skilled enough to do their jobs well; they do not have enough information; or they have the wrong incentives. If you’re paid for maximum production you’re going to take risks.
So in the case of a financial company I’d say monitor your traders, and maybe especially those that make a lot of money. There are a lot of ways you can make a lot of money: skill, luck, or through imprudent choices that sooner or later are going to catch up with you.
So you can do risk analysis even without reliable statistics?
We generally do a system-based risk analysis because we do not have reliable statistics. The goal is to look ahead and use the information we have to assess the chances that things might go wrong.
The upshot is that business schools ought to do a better job of teaching MBAs about probability.
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“Numbers make intangibles tangible,” said Jonah Lehrer, a journalist and
author of “How We Decide,” (Houghton Mifflin Harcourt, 2009). “They
give the illusion of control. [Add "sense of control" to tags]
engineering  sense_of_control  black_swan  warning_signs  9/11  HIV  Aids  business_schools  MBAs  attitudes  interconnections  interdependence  mindsets  Stanford  imagination  systems_thinking  anticipating  probabilities  pretense_of_knowledge  risk-management  thinking_tragically  complexity  catastrophes  shorthand  incentives  quantified_self  multiple_stressors  compounded  human_errors  risks  risk-analysis  synchronicity  cumulative  self-protection  systematic_approaches 
november 2013 by jerryking
Jules Kroll shakes up the ratings club
January 29, 2011 | CTV News | JOANNA SLATER. Mr. Kroll, 69,
is bringing his investigative chops to a new business: credit ratings.
It’s a corner of finance that remains indispensable even after the
leading agencies did a woeful job of gauging risks in the runup to the
financial crisis.

As banks packaged dicey loans into new investments, the major ratings
agencies affirmed that the structures were ultrasafe – until, of course,
it turned out they weren’t. That experience so scorched investors that
the market for such structures remains moribund to this day.

“The fans left the stadium a couple years ago,” says Mr. Kroll, a
gregarious one-time baseball and rugby player. “They didn’t feel they
could trust the referees or the scorekeeper.” The firm he now heads,
Kroll Bond Rating Agency Inc., aims to remedy that lack of confidence.
confidence  credit-ratings  due_diligence  Jules_Kroll  Kroll  new_businesses  risk-analysis  risk-assessment 
april 2011 by jerryking

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