Market risk managers are tasked with evaluating and diffusing these situations on a daily basis. A proactive risk manager will attempt to determine the outcome of potential events before they occur. They view the risk outside the groupthink box and consider what happens if the market behaves in a manner 180 degrees removed from the consensus expectation.
The tools used to expose and mitigate these events are often known as ‘what if’ stressing scenarios. This practice allows risk managers to view the outcome of yield curve shifts to determine if the risk exceeds the benefit of holding the position. Traders are stereotypically regarded for taking a ‘that will never happen’ approach when risk managers pose assumptions that would negatively impact their position. However, it is imperative for the risk manager to understand what could happen prior to the event.
KRM22’s Global Risk Platform provides applications to help you address your firm’s regulatory, market, technology and operations risk challenges and to manage your entire enterprise risk profile. KRM22 is a public Group listed on AIM and headquartered in London, with offices in several of the world’s major financial centers.