Portfolio risk monitoring

Clifford V. Rossi

doi:10.1017/CBO9780511997723.006

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3 - Portfolio risk monitoring

from PART I - RISK MANAGEMENT CONTEXT FOR FINANCIAL DATA

Edited by

Dilip Krishna and

Clifford V. Rossi: Affiliation:
University of Maryland
Dilip Krishna: Affiliation:
Deloitte & Touche, LLP

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Summary

This chapter reviews the building blocks for an effective portfolio risk monitoring capability, emphasizing the reporting and governance elements needed for successful risk tracking within a financial firm. To motivate the discussion and provide consistency throughout, the focus is on monitoring a mortgage portfolio, realizing that the monitoring function spans across assets, liabilities, business lines and risk types. However, the general lessons presented here apply to a broad range of portfolio types, including equities, fixed income, derivatives, etc.

What is portfolio risk monitoring?

Performance monitoring is a risk manager's primary tool for understanding the quality of the risk profile of a portfolio and must be viewed as a dynamic process as economic and market conditions and obligor risk profiles change over time. Such a process must be tailored to the specific features of the portfolio and so requires a high degree of customization. For example, designing an asset-liability management (ALM) monitoring framework might entail development of interest rate shock scenarios against which the portfolio would be measured in terms of market value changes, and/or include a value-at-risk (VaR) analysis of individual asset types such as equities, foreign exchange exposures and fixed income positions. As a guidepost to developing such capabilities, the portfolio manager must determine the audience for the results and the timelines required for each reporting deliverable.

Type: Chapter
Information: Handbook of Financial Data and Risk Information I
Principles and Context
, pp. 75 - 104

DOI: https://doi.org/10.1017/CBO9780511997723.006 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2014

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