Why Now?
The explosion in securitization and structured finance and credit derivatives over
the past decade has been built largely on the wide availability of computing
power, and the proliferation of in-house and third party quantitative finance and
modeling capabilities. For the most part, models used to price, value and
estimate risk (e.g., Value at Risk or VAR) for complex financial instruments have
been proprietary and highly secretive black boxes which gave their owners (e.g.,
the large commercial and investment banks and large sophisticated investors)
confidence in their ability to predict future values and risk.
As it has turned out, the opaqueness and proprietary nature of these models,
more than specific doubts regarding their validity or accuracy, led to the current
crisis. The vast majority of investors exited the market due to their concerns
about future losses and a lack of their own modeling and underwriting resources
to value and assess the true risks of Credit Securities. .
The world’s credit markets have ground to a halt as investors abandoned these
impenetrable Credit Securities and the securities issued by large holders of
Credit Securities. Without the ability to sell existing Credit Securities positions or
to issue financing liabilities at reasonable yields, banks have been forced to rely
on governments as lenders of last resort. Investment banks have either failed or
have converted to (or been acquired by) banks in order to gain access to
government liquidity facilities.
WRAP believes that a robust transparency is key to restoring investor
confidence, but one that surpasses the valuation, risk assessment and
benchmarking models of the past. We also believe that global collaboration is
required to ensure that the best minds and resources are brought together to
achieve a goal that collective economic well-being depends upon.
The explosion in securitization and structured finance and credit derivatives over
the past decade has been built largely on the wide availability of computing
power, and the proliferation of in-house and third party quantitative finance and
modeling capabilities. For the most part, models used to price, value and
estimate risk (e.g., Value at Risk or VAR) for complex financial instruments have
been proprietary and highly secretive black boxes which gave their owners (e.g.,
the large commercial and investment banks and large sophisticated investors)
confidence in their ability to predict future values and risk.
As it has turned out, the opaqueness and proprietary nature of these models,
more than specific doubts regarding their validity or accuracy, led to the current
crisis. The vast majority of investors exited the market due to their concerns
about future losses and a lack of their own modeling and underwriting resources
to value and assess the true risks of Credit Securities. .
The world’s credit markets have ground to a halt as investors abandoned these
impenetrable Credit Securities and the securities issued by large holders of
Credit Securities. Without the ability to sell existing Credit Securities positions or
to issue financing liabilities at reasonable yields, banks have been forced to rely
on governments as lenders of last resort. Investment banks have either failed or
have converted to (or been acquired by) banks in order to gain access to
government liquidity facilities.
WRAP believes that a robust transparency is key to restoring investor
confidence, but one that surpasses the valuation, risk assessment and
benchmarking models of the past. We also believe that global collaboration is
required to ensure that the best minds and resources are brought together to
achieve a goal that collective economic well-being depends upon.
Every segment of the global financial market is in desperate need of WRAP,
including:
Why now? Because waiting means greater risk and more losses (e.g., due to
lower investor confidence, less liquidity, even lower values, reduced economic
activity, higher funding costs, poorer performance, reduced ratings) in a
downward spiral, and none of the above can afford to wait.
including:
- institutional investors, to enhance buy/hold/sell decisions
- banks, in order to manage/increase confidence in their solvency and
capital adequacy - local governments, whose access to financial markets has been
undermined by market excesses (e.g., monoline expansion into credit
derivatives and the use of the auction rate market) - national governments, to maintain the public faith and to withstand the
inevitable scrutiny of investors in their debt securities - boards of directors, to protect shareholders and to limit liability
Why now? Because waiting means greater risk and more losses (e.g., due to
lower investor confidence, less liquidity, even lower values, reduced economic
activity, higher funding costs, poorer performance, reduced ratings) in a
downward spiral, and none of the above can afford to wait.
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Open Models Company
Wiki Risk Assessment Process 2.0
Wiki Risk Assessment Process 2.0