0% of Understanding Risk Management and Compliance, What is different after Monday, June 17, 2013 completed


From the Publisher

Did you know that "Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much."

Who said that?
Chairman Ben S. Bernanke, at the Baccalaureate Ceremony at Princeton University.

The title of his speech: The Ten Suggestions.

Mr. Bernanke, are you jealous of this Top 10 list? Why did you develop exactly 10 suggestions?

His speech is very interesting. We can even find more about meritocracy:

"A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate—these are the folks who reap the largest rewards.

The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world, and to share their luck with others."

Well, I will spend the weekend thinking about it, especially the methodology, how they can "share their luck with others".

As a consultant, I must develop a step by step luck-sharing methodology.

Well, I think it is better to make it "principles-based" instead of "rules-based".

I already have some ideas. The process will have 3 Pillars.

Pillar 1: Luck Quantification.

Pillar 2: Internal Luck Adequacy Assessment Process, and luck stress-testing.

Pillar 3: Luck Transparency.

It looks a bit like Basel iii ... I know ...
According to the "if all you have is a hammer, everything looks like a nail" principle, we can use a Basel iii approach almost everywhere.

We will use a Monte Carlo simulation to quantify the "luckiest in so many other ways difficult to enumerate" part, as Mr. Bernanke said.

Monte Carlo is a nice quantitative risk analysis technique.

We will simply generate 20,000,000 luck scenarios, we will find the range of possible outcomes and their probabilities, then we will find a probability weighted luck average, and we will calculate the LaR (Luck at Risk).

Yes, you can use the Basel III model.

You will simply replace the "risks" with "opportunities".

In banking, we have positive and negative (for our profitability) inputs.

In our luck-sharing methodology we have only profitable inputs.

Instead of inflation we put inheritance - the passing on property, titles etc. upon the death of relatives we have never met.

You get the picture.

Instead of market risk (and the Credit Valuation Adjustment amendment) we put opportunity to invest in Google-like firms when they are still young.
The best part: The Probability of Default for any counterparty is zero - we are lucky, remember?

And, I have only started thinking about it. :)

Read more at Number 1 below.

Published: George Lekatis on
ISBN: 9781301618866
List price: $0.99
Read on Scribd mobile: iPhone, iPad and Android.
Availability for Understanding Risk Management and Compliance, What is dif...
With a 30 day free trial you can read online for free
  1. This book can be read on up to 6 mobile devices.