Regulation and Risk Models
The regulation of market risk has driven development of risk management practices and the associated systems infrastructure needed to support the reporting. Without regulations that require VaR computation for capital purposes, the use of VaR as a risk management tool would be much less universal. The portfolio management techniques it grew from were first created in the 1950’s, but it took 40 years for the industry to even show an interest in managing portfolio risk in this way. From 1996 VaR models became a part of the regulatory toolset and capital relief was generally available for those that completed successful implementations.
Jeremy ODonnell is a consultant project manager working in the City of London. He has more than 15 years of experience of working with market risk system implementations at institutions with 250 employees to 200,000 employees. He now works independently as the director of Risk Appetite, a professional services company providing expertise in change management for regulatory change. He has an M.Phil. in Non-linear Risk Measurement from Imperial College Management School and a BA (Hons) in Physics from New College, Oxford.