Risk Management: The Pros And Cons Of Building Your Own System

Effective risk management requires that the firms establish culture, policies and procedures that are specific to their operating model. However, at its core risk management is a quantitative discipline that requires significant investment in data, systems and people. In an article written by Aleksey Matiychenko and Alexander Makeyenkov they discuss what it takes to develop internal risk management architecture.

In order to effectively develop a risk management structure, its important to have these four things ready:

1. Holding and trade level data
2. Historical pricing data for securities traded by the fund
3. Historical data for risk factors used in various analyses
4. Results of risk management analyses

To be truly reliable, the data used in risk management analysis should be housed in a relational database such as a MS SQL Server or Oracle.

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Risk Management: The Pros And Cons Of Building Your Own System