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The Business Case for Enterprise-Wide Risk Management
Jan 1, 2002
Risk management for a financial enterprise requires both the aggregation of positions across asset classes and the understanding of risks inherent in those positions. Thie is by no means a trivial task for modern organizatins, which may control many hundreds of thousands of positions invested in a variety of instruments traded across the globe. In order to obtain a solution, smplifications have typically been made both at the level of aggregation and risk analysis. For example, assets may be "grouped" according to their similarity, with a single group of assets being treated as homogeneous. While these simplifications may be unobjectionable for some purposes, certain applications demand a more sophisticated approach. Fortunately, the technology supporting this latter set of applications has evolved to a level where shortcuts in modeling the decision are no longer necessary. This article focuses on the business role of enterprise-wide risk analysis, where consistency is desirable between the analysis a the single portfolio level and the aggregated enterprise level. The clear implication is that the technology applicable to a single portfolio must be implemented enterprise-wide.
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