With fear and loathing returning to world markets, risk managers are facing their biggest test since the financial crisis.
In the run up to the 2008 financial crisis, risk managers' warning were largely ignored.
Since 2009, many banks have been working overtime to get their house in order and better manage trading operations.
Lawmakers and regulators are goading banks to keep at it. U.S. Democrats are trying to get a sweeping new law through Congress that targets some of the industry's risky practices. Worldwide, regulators see an improvement in banks' own risk management as a key piece of the puzzle, as noted in the final statement from the recent G-20 meeting in Toronto.
But while banks and governments have been focused on improving the situation and have made some limited progress, there are still numerous problems with risk management on Wall Street. That starts with a lack of tools to quantify their risks, or even to identify all of the details about the positions on their books.
"There's still a long way to go to make up for some of these gaps," said Sid Sankaran, a risk management consultant who works with major banks at Oliver Wyman. "It could be a multiyear effort."...
More from Dan Wilchins writing at Reuters.
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Random portfolios select a sample of portfolios that obey a given set of constraints.
They have many uses -- measuring performance is one of the most important.
Performance can be measured much more accurately with random portfolios than
with other methods. The measurement can be on hypothetical strategies in backtests
as well as traditional performance measurement.