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Portfolio Risks
Interest rates *
Credit * Currency * Audit *
Trading
Interest rate
risk
Paterson measures and analyzes portfolio risks for interest rates, credit, currency, trading and audit.
Paterson reports these risks to senior management, the board of directors, and regulators.
Paterson’s risk model forecasts the effects of alternative techniques for monitoring and managing these risks in the cash, futures, swaps, and options markets.
Credit risk
Credit risk
can sometimes outweigh interest rate risk by a factor of 10, leading to
the bankruptcy of the institution.
Paterson works with the company's credit department, credit rating
agencies, and market forces to measure, nalyze and manage this risk.
Trading risk
Traders are
given tremendous authority to
adjust the asset mix in a portfolio, implement and manage hedge
positions, and structure new asset types. Without strict and
knowledgeable policies and procedures, the company can lose billions of
dollars.
From the first, Paterson has advised internal auditors, audit firms,
and boards of directors on the tools and techniques to manage trading
risk and audit traders' behavior.
Currency risk
Currency
values fluctuate as monetary policies,
trade patterns, and central bank actions change. The company must
monitor these changes and insulates earnings from potential
fluctuations.
Paterson's currency risk model is unique in the industry in its ability
to quantify the current risks and project the effects of changes in
currency values.
Audit risk
Without
controls over treasury and audit
functions, there is a reporting problem. But more importantly, there
are both fraud and embezzlement problems.
Paterson works with the Accounting Committee of the Board of Directors
to ensure the controls are in place to eliminate fraud and embezzlement.
Money
Market Arbitrage
As the yield curve changes, credit
risk expands, and as spreads between US Treasuries and other
instruments widen, financial institutions will find profitable
opportunities in money market arbitrage.
Risks are low in money market arbitrage
because yields can be matched against both changes in rates and the
yield curve.
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Email jim.klein(at)paterson.com
Phone 415-710-3651 |
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