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Risk-Based Funding June 6, 2006

Posted by newyorkscot in Risk Mgt.
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So, apparently New York City does not need the $207mm it had last year to defend itself from terrorism. Last week the Dept of Homeland Security cut NYC's budget by 40% to $124.5mm citing that "the region had no "national monuments or icons," four banking or financial firms with assets of over $8 billion, 28 chemical or hazardous material sites, as well as nearly 7,000 other possible important, high-risk targets, like hospitals or major office buildings…". The calculation was done using "risk-based funding". I would love to see that piece of analysis.

Apparently, the Empire State Building, Statue Of Liberty, Ellis Island, Chrysler Building, Metropolitan Museum, Times Square area, Grand Central Station, Brooklyn Bridge, to name a few, are neither monuments nor icons.

So, what is the big deal about NYC's skyline, again ? Utterly ridiculous. Apparently, the Brooklyn Bridge is categorized as merely a "bridge". And the Empire State Building is just an office building. Huh (??!!)

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Weather Derivatives May 30, 2006

Posted by newyorkscot in Markets, Risk Mgt.
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Will be interesting to see how the market for weather derivatives develops. The range of applications for these products is endless. Thanks, John, for this site on these financial products.

At the Chicago Mercantile Exchange, 328,000 contracts were traded between January and April, up from just 4,200 a year earlier: article here.

2-D Risk Maps July 30, 2005

Posted by newyorkscot in Risk Mgt.
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In James Lam's Enterprise Risk Management book, there are some general approaches to Operational Risk Management as well as brief discussions on some of the specific techniques on how to assess and control risks. One particular approach is that of developing 2-D Risk Maps whereby a general risk assessment is treated with the application of relative risk rankings (with respect to probability and severity). Additionally, he discusses risk indicators and performance triggers that get factored into the "dashboard".

I can think of a number of examples of the indicators and triggers (e.g. 99.97/8/9% uptime of a production application or piece of hardware, etc). But, I would love to see some specific examples of these Risk Maps for an bank's application environment as I think this could be a rather tough thing to create given the diversity and complexity of the enterprise. Presumably, the severity ranking would include the criticality of the application in general, impact of certain functions/information not being available, and the knock-on (chain) effects. As for probability, I would imagine that it is more of a combination of some emperical data (ie knowledge of existing problematic systems) and a some finger-waving guestimates.