Managing an asset management firm's risk portfolio

Abstract

This paper presents a simplified model for quantifiably measuring and managing various types of risk, as a portfolio of risks. An asset management firm may face a variety of risks due to the broad nature of various investments. The technique utilises computerised simulation and optimisation modelling. The software used to administer the simulations is Crystal Ball. The use of simulation allows risk managers to combine the various categories of risk a firm faces into one risk portfolio. These techniques will enable risk managers to have the information needed to achieve the desired level of overall firm risk and the expected cost of managing risk. The firm's overall risk metric selected for use in this paper is the standard deviation of after-tax operating earnings.