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Saturday, February 11, 2012

Risk Forecasting in an Uncertain World.

With the current situation in the Eurozone combined with the increasing percentage of revenue coming from overseas among the largest stocks in the world, there is a simultaneous increase in currency risk for many companies. This trend translates into increasing currency risk for asset managers also, and one example concerns the increased risk for GIIPS-country companies. For example, suppose you are a publically-traded importer of Korean goods located in Italy and you suddenly find your stock trading in Lira, while your debt is still denominated in Euros. In this scenario, the Lira would be devaluing relative to the Won and Euro, and you’re going to have to pay more for the Korean import items, while your debt service costs are going up.  This means business and total risks are increasing because there is a new currency exposure present. This increased volatility should result in increasing market risk and increasing tracking error to one’s portfolio. We’ll examine options for measuring and dealing with these kinds of risks in one’s portfolio and offer a perspective on global risk estimation and stress-testing.

Above is the link to the recording!