Building pessimised scenarios

Isolating events that could produce significant losses has long been a part of risk assessment. However, pressure is building to make such insights a standard component of regular risk analysis and reporting, writes David Rowe

One of my first risk projects was building a basic value-at-risk system for the foreign exchange trading activities of Security Pacific Bank. Using simple correlated aggregation based on parameters estimated from a short moving history, it was a distinctly first-generation effort. Even so, the standard daily report showed VAR estimates broken down by trading room and by currency, in addition to