Social Interfaces

 

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

I have written before about the need for more consideration of design factors
in risk management.  This is something I am currently doing academic
research on in terms of trading systems.  It is admittedly not new research
for trading.  Major financial institutions spend a significant amount of
time optimizing how a trader receives and transmits information on their
trading screens. 

However, how much do we think about the social interface for risk management
systems?  How socially friendly (and socially usable) are risk management
reports?  How socially friendly and usable are most risk management
metrics?  What about the social friendliness of risk mathematics?  Do you
think the financial crisis of 2008 might have been averted if Gaussian
Copulas were a more socially accessible technique?


[1] https://twitter.com/rsdsolutions

Yes, No, Maybe So

 

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on witter/* [1]

We like to think that with our advanced intelligence and our advanced
technologies and techniques that we have created a yes / no world.  Perhaps
that is true for simple problems, but for virtually all problems worthy of a
manager's attention or the analysis of an expert, the answer is almost
always "maybe so".


[1] https://twitter.com/rsdsolutions

Are you sure you don’t have FX exposures?

 

*/By Stephen McPhie, CA
Partner, RSD Solutions Inc./*

/(Repost of blog from May 15, 2012)/

So your company operates only domestically and you are satisfied that all
purchases and sales are in domestic currency.  No need then to spend any
more time thinking about exchange rate volatility.  Are you sure?  How
about your major suppliers?  Or your major customers?  Their currency
exposures could affect you greatly. 

If your supplier gets a lot of inputs from abroad, he may be forced to jack
up his prices to you if the domestic currency weakens.  Or if your sell
inputs to a major customer who sells much of his product abroad, you are
vulnerable to him passing on some or all of his currency exposures to you. 
And of course, if your currency strengthens, you may suddenly be hit by a
flood of cheap imports competing with your products.

So are your risk systems geared up to look at the bigger picture?

Pictures

 

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

In the September 6 issue of the Wall Street Journal, Stephen Hawking wrote a
short essay that describes the writing of his bestseller A Brief History of
Time.[1] [2]  It is a very interesting account of how a very unlikely book
became a best seller.  One of the aspects of the book that allowed it to
become so popular is that it explained theoretical physics in a way that most
people could (sort of) understand. 

Part of getting a very mathematical subject understandable to the masses is
to minimize the need for advanced mathematics.  In this article Hawking
makes a comment about this that I find to be very fascinating.  He writes,
"I don`t care much for equations myself.  This is partly because it is
difficult for me to write them down, but mainly because I don`t have an
intuitive feeling for equations.  Instead I think in pictorial terms, …"

There are two things I find fascinating about this statement that are also
relevant to risk management.  The first is that the great physicist Stephen
Hawking does not have an "intuitive feeling" for equations.  The second
is that he thinks in pictorial terms.

How many risk managers are concerned about having an intuitive feeling for
the risk situations they are trying to quantify.  How many risk managers,
particularly the most mathematical trained, are concerned with their
intuitive understanding of a situation?  Furthermore, how many risk managers
think in pictorial terms?  I suspect that many senior executives and Board
members think in pictorial terms.  If it is good enough for Stephen Hawking,
it ought to be good enough for the vast majority of risk managers.

------------------------------------------------------------------------------
[1] [3] Stephen Hawking, Stephen Hawking`s Brief History of a Best Seller,
Wall Street Journal, September 6, 2013

 


[1] https://twitter.com/rsdsolutions
[2] #_ftn1
[3] #_ftnref1