(See BIS D304)
Our view is that securitisation is fundamental financial technology and there is no intrinsic technical reason why it could not be harnessed to best serve the functioning of modern economies.
This page is a summary of a presentation given at the 2014 Autumn TopQuants Meeting, aka, the Open Source Risk Modeling Manifesto.
The current framework of internal risk modeling at financial institutions has had a fatal triple stroke. We saw in quick sequence: market risk, operational risk, and credit risk measurement failures, affecting practically all financial sector business models.
In our personal lives, it is the balance between work and life, or the dreadful weight balance. In the professional sphere it might be the balance between debt and equity in the financial industry, or the balance between convenience and citizen privacy in the new tech industry, or the welfare of the many balanced against the property of the few, or finally the geopolitical balance of power of different peoples Balance ensures sustainability as it helps steer away from the risks that lurk at the extremes. It is actually hard to find scenarios in which a balanced approach would not be the optimal way to complete any meaningful journey. Maybe in a world with full visibility and zero risk.
Financial Risk Modelling has suffered enormous setbacks in recent years, with all major strands of modelling (market, credit, operational risk) proven to have debilitating limitations. It is impossible to imagine a modern financial system that does not make extensive use of risk quantification tools, yet rebuilding confidence that these tools are fit-for-purpose will require significant changes. These need to improve governance, transparency, quality standards and in some areas even the development of completely new strands of modelling.