An Invisible Framework for Predictive Analytics
Predictive Analytics has gained tremendous significance over the last few years, and it’s only increasing by the day. Powered by Artificial Intelligence tools and techniques, it is being applied to almost every industry and every field today. And these tools are being super-charged by real-time data. As you’d very likely know, World has created 90% of all data in the last 2 years. But is this data really organized, and how do we make sense out it?
Countering Credit Risk with PFE
With commodity and energy prices regaining volatility, most players are struggling to find answers to one of their most critical risk factors – Counterparty Credit Risk. While many, especially in the oil & energy sector, have VaR based tools to measure and manage their Market Risks, few have ventured formally into expanding the scope of Risk Management to Credit Risk.
A New “Definitive” Model for Risk
Risk Edge has recently released its latest Whitepaper on Back-testing Expected Shortfall. The paper present a New “Definitive” Model for Risk Management and answers several long-standing questions about managing Risks. While relying on historical data for extreme losses, the model discusses a new framework that allows commodity trading / processing companies to gradually build their Risk war-chest, instead of …
Our Story, on YourStory.com
Last week, Risk Edge was covered in Yourstory.com, India’s biggest platform for Start-ups. This coverage gave us great pleasure (and a lot of new connections !!) as Yourstory is by far the most followed website by all Indian Entrepreneurs, budding Founders and Co-Founders and Investors.
Whitepaper – Historical vs Implied Volatility – Which one to Use for computing VaR?
The Whitepaper tackles one of the oft-pondered questions in the Risk Manager’s circles – should they use Historical Volatility or use Implied Volatility for calculating VaR. There are generally good arguments for each – Historical is the most used volatility method, relied by several over many years and gives consistent results. But when it comes to incorporating market intelligence into how volatility is going to change in near future, there is seldom a better candidate than…
Chapter 8 – Get Deeper Insights
Here is Chapter 8 from our very well-received, 32-page E-Book –Benefiting from VaR – Quick Guidelines for Commodity Risk Practitioners. A quick recap for those who’ve read and enjoyed it, and for those who haven’t yet read it, you can download it now from here ! The E-Book is written for Commodity Risk Practitioners who are just starting with a Risk Function as well as those who have …
Handbook for Risk Requirements & More…
Over the last few weeks, we’ve released a new Whitepaper, initiated a “Knowledge Series” of Articles on Commodity Risk Management. Both have received pretty good responses so far. A lot of people have written to us appreciating the publications on Commodity Risk Management, and buoyed by this response we’ve embarked on yet another E-Book. This blog post is about our upcoming E-Book and the other recent publications we’ve released, which includes a Whitepaper on Stabilizing Monte Carlo VaR Results, and a Knowledge Series article on Understanding Volatility.
Top 5 Strategies for Growth for Big Businesses
Many senior management people in big businesses are struggling today with the next phase of growth for their companies. This struggle is sometimes complex to understand as it doesn’t stem entirely from lack of growth. Rather, it is deeply rooted in the desire and demand for break-away growth. Many feel that there is a good possibility that this Growth can be achieved endogenously, through better processes and systems. This blog post talks about the top 5 strategies for growth for big businesses and how they can achieve it by shifting focus on better Risk Management.
Chapter 2 – Set Risk Limits
This post is actually Chapter 2 (of 8) from our very well-received, 32-page E-Book –Benefiting from VaR – Quick Guidelines for Commodity Risk Practitioners. A quick recap for those who’ve read and enjoyed it, and for those who haven’t yet read it, you can download it now from here ! The E-Book is written for Commodity Risk Practitioners who are just starting with a Risk Function as well as those who have a ready set-up and are looking for better ways to leverage on that. Stay tuned for more chapters from our E-Book over the coming weeks !
Top 5 Questions Commodity Risk Managers should ask
Commodity Risk Management as a function is undergoing a crucial phase today as a result of several structural changes worldwide. As banks quit commodity trading businesses and regulatory reporting tightens, Risk Managers are being forced to think of new ways to deal with the changes. When faced with such an environment, I believe it is far more important to have the right questions rather than the right answers. So in this blog post, we identify the Top 5 Questions Commodity Risk Managers should ask.
A New Approach to Optimize Hedging
We recently released a Whitepaper with a New Approach to Optimize Hedging Costs. While this framework can be applied to any industry, we’ve demonstrated its utility specifically for Oil Refining Companies. The results from the framework are encouraging to an extent that it seems well worth exploring further – based on our joint studies with a couple of large oil refining companies.
Corporate Darwinism for Commodity Trading Firms
With banks exiting commodity trading, Commodity Trading Firms are at the cusp of a fundamental business shift. Risks are very likely to shoot up, leaving Commodity Trading firms no choice but to evolve and adjust to these shifts. This post is about how commodity trading firms will be impacted with these changes, and how successful ones will adapt themselves to the new situations.
Review: Report on Economics of Commodity Trading Firms
The recent release of Report on Economics of Commodity Trading Firms is a bold step from a well-respected Commodity Trading Firm (CTF) – Trafigura, in giving an insight and “demystifying” the secretive commodity trading industry. And it is indeed a very impressive read. The Report focusses on how Commodity Trading Firms are exposed to various risks – Price, Basis, Spread, Liquidity, Credit, etc. and how they manage those risks. This blog post reviews the report and highlights some important findings from the report.
Avoiding Kotov’s Syndrome in Risk Management
Alexander Kotov (1913-1981) was a Soviet Chess Grandmaster and author. In his book, Think Like a Grandmaster, he described a situation now known commonly as the Kotov’s Syndrome. The situation is when a player thinks hard for a very long time but does not find any clear path, and then since he’s running out of time, quickly makes a poor move. Read on know more about how Energy and Commodity Trading Companies face Kotov’s Syndrome often and what they can do to avoid it.
Thank You !
In the past few days, we have released a couple of Publications on Commodity Risk Management. Both of these publications received an overwhelming response from our followers and readers. So, we thought we’ll say a Big Thank You to everyone who has registered, downloaded and read these publications and more importantly, told us how much they appreciated it ! We really appreciate your response and queries. We’ve taken time out to reply to each one of them, hoping it will help you in your efforts to deliver more from Risk Management for your company !
Wish you a Happy & Risk-enabled 2014 !
2013 was a year of significant turbulence and uncertainty. While Stricter Regulations pushed some investment banks to close down their commodity trading divisions, Volatility and poor returns saw some commodity hedge funds closing down. Will this trend of Banks exiting Commodity trading business expected continue? How will Regulatory pressure impact the commodity businesses? Read on about the impact of these on Commodity Trading and Risk Management. Wish you a Happy and Risk-Enabled 2014 !
Commodity Risk Management beyond VaR
VaR gives the maximum loss, with a certain confidence, but not what you could lose beyond that . This is one of the prime short-comings of VaR. The blog post “Commodity Risk Management beyond VaR” explores this area. Some seemingly complex mathematical equations are also covered as simple statements to help you understand the theory and idea behind the solution to this short-coming. Read to know more on how this is a serious issue and how Expected Shortfall, also known as Conditional VaR, can help us address this issue to a certain extent.
Top 5 issues with Commodity Risk Systems
This post is part of our unorganized research and survey which we have done across multiple industries and geographies, to find out the top 5 issues with Commodity Risk Systems that are being faced by the trading companies. While many companies are likely to have one of these issues, some might even be in more than a single category. So, even if your organization falls in one of them, you might want to go through the other categories as well so as to know in advance the other pitfalls to avoid.
The Future of Commodity Risk Management
Following up on the huge response to our Blog post “The Evolution of Commodity Risk Management“, we cover some of the most pertinent questions raised by several people in this blog post – The Future of Commodity Risk Management. Here is what we think about how Commodity Risk Management is going to change in the Future for companies that either don’t have a well-established risk management process or are struggling with their processes. The post covers the top 5 trends that will be clearly visible in Risk Management for all companies in the coming years. The post also draws insights from our interaction with the industry, and several global surveys done by some large audit firms.
The Humble PI of Risk Management
A lot of approaches and frameworks get discussed in companies that are relatively new to implementing Risk Management processes – the types of control processes, committee structure, risk reports, estimation methods, quantification models, systems, people, etc. In this post, we introduce Probability Impact Matrix and briefly discuss how companies can use this framework as a stepping stone to establishing best in-class Risk Management Processes.
The evolution of Commodity Risk Management !
While maturity of Risk Management processes is good in Banking and Insurance industries which is closely followed by the Energy Trading industry, for Commodity Trading industry it is still in a relatively nascent stage. This is primarily due to delayed integration of commodity markets with the financial markets. But its history and evolution isn’t any less interesting ! In this post, we take a quick look at the evolution of Commodity Risk Management over the last couple of decades and before coming back to the future !
Dealing with Commodity Risk Management Function Structure
Many commodity companies who are setting up or revamping their risk management function frequently deal with this question in their internal meetings – Should our commodity risk management function structure be centralized, run from head-quarters, or de-centralized, run from individual business units?
Why everybody in your organization is a Risk Manager?
Several commodity trading / processing organizations think that their Chief Risk Officer (CRO) or Chief Financial Officer (CFO) or CEO has the sole responsibility of managing and reducing risk for the entire organization. In fact, surveys have shown that many Asia-Pacific based organizations think of CEO as primarily responsible for managing risks while European and North American organizations have this perspective for their CROs.
6 reasons why you should trash your existing Risk Management System
If you are a commodity risk manager wondering whether your existing risk management system is really upto the mark and whether you should continue with that system or not, then this blog post gives you 6 reasons why you should trash your existing Risk Management System.
Risk Management or Trading Profits – the classic paradox
There is hardly any other question that we’ve come across more often than this one – sometimes asked upfront and sometimes seen lingering at the top of the mind, but it’s almost always there – If Risk Department cuts my positions for managing risks, how am I supposed to make profits? And almost always, the position in question is either expected to run further profits or expected to turn around to a profit making position soon!
The huge Cost of poor Risk Management
Many commodity trading / processing companies inadvertently end up relegating their Risk Management Function as just an obligatory process, and are unable to figure out how to measure the effectiveness of Risk Management on their bottom-line or margins. Many others invest in risk management by either developing their own in-house systems and processes, or by building teams to better support that function – but are still unable to clearly define whether all of this has resulted in bettering their risk management function or not.