David LaCross "On the Use of Mathematics in Risk Management" MSRI, Berkeley, 4/28/98
Joe Christy
Mathematical Sciences Research Institute
Mathematics and Technology Seminar
On the Use of Mathematics in Risk Management
David LaCross
Agenda:
An informal discussion regarding career paths for mathematicians
in finance
* Where is money made today in financial institutions?
* Valuation models
* Example of mathematical value added: Backward vs.
Forward looking "Value at Risk" Calculations
* How to enter the field
* Where does it take you
The Speaker:
David LaCross is the founder of Risk Management Technologies (RMT), the
developer of the RADAR System, and now a wholly owned subsidiary of
Fair, Isaac. RADAR is an integrated risk management decision support
application used by complex, sophisticated institutions internationally.
Prior to founding RMT in June, 1989, Mr. LaCross was executive vice
president and chief financial officer of America First Financial
Corporation, a financial services holding company.
Before joining America First, Mr. LaCross spent ten years with Bank of
America. In 1987 he became a senior vice president at BofA, with global
responsibility for interest and currency swaps, interest and currency
options, plus all derivative products, collectively the most profitable
area of BofA's capital markets activities. He was also responsible for
all securities and FX dealing support systems and associated software
development for the Capital Markets Group worldwide.
From 1985 to 1987, Mr. LaCross was managing director of BA Asia Limited.
He was responsible for all capital markets business in Asia, including
securities sales and trading. In 1984, he served in Tokyo, with
responsibility for all securities sales and trading in Asia. Sales
offices were located in Tokyo, Hong Kong, and Singapore. Before moving
to Asia, Mr. LaCross worked in London, where he was responsible for
BofA's tax-oriented and cross-border leasing activities in Europe. He
also assumed responsibility for the U.K. Real Estate and High Technology
corporate finance units and associated loan portfolios.
Previously, Mr. LaCross was chief administrative officer for the newly
formed Capital Markets Group, at Bank of America. He was responsible
for the strategic planning process and directed the tax planning effort
of BankAmerilease. Initially, he was part of the strategic planning
group of BankAmerica Corporation.
Mr. LaCross has a BS in quantitative methods and an MBA from the
University of Virginia.
His Company:
For the last seven years, Risk Management Technologies (RMT) has helped
major financial institutions worldwide accomplish two essential goals:
1. Minimizing the potential variability of both net income and market
value in all likely economic environments, and
2. Maximizing ongoing profitability within management's established risk
tolerances.
In achieving this, we have expanded the traditional scope of
asset-liability management. By implementing RMT's RADAR System,
Treasury staff gain the ability to help actively manage the overall
performance of the entire institution, not just passively analyze and
report. This new capability is now usually described as "enterprise
financial risk management."
To accomplish these overall goals, we typically help clients make two
important transitions:
1. Focusing more centrally on creating and maintaining a corporate
balance sheet that has enduring value: one not focused solely on
profits in the next quarter, but constructed to produce optimal
risk-adjusted returns over years to come. This requires an increasing
emphasis on capital structures and longer-term funding strategies, not
just on reactive or opportunistic tactics.
2. Moving beyond sole dependence on scenario-specific and deterministic
projections by adopting stochastic techniques and dynamic modeling.
Beginning with the use of Monte Carlo methods of analysis, adding
dynamic economic submodels that respond to future conditions
intelligently, and overlaying interactive "what-if" strategies, our
clients learn to focus attention on what actually drives the business in
any environment, rather than speculating on what the future environment
might somehow become.
We have focused our efforts on meeting the needs of the 350 largest
banks in the world. All of these have complex balance sheets, most
operate internationally, and all are undergoing rapid changes both
internally and in their marketplace. For all of them, RMT's RADAR System
has become more and more a key strategic and global application.
While we are known for our analytical solutions, RMT's success has also
very significantly been based on our underlying technology strengths and
on our data-management capabilities. Clients cannot manage what they
cannot measure, and they cannot make confident decisions unless
analytics are performed quickly, accurately and responsively.
For clients, our technology is an enabler. Our RMT Genesis graphical
data tools, for example, enable comprehensive data-integration and
data-warehouse work to conclude in months rather than years, with an
implementation team of only two or three staff. Our ability to perform
RAM-resident simulation modeling lets analytical staff build a "flight
simulator" for the institution that boosts their productivity and their
understanding. And our ability to perform interactive analytics with
transaction-level accuracy (even for half-trillion-dollar institutions)
allows confident decisions to be made as rapidly as they are required.
2 PM, Tuesday April 28, 1998, MSRI Lecture Hall
Next Month:
George Lakoff and Rafael Nunez, Institute of Cognitive Studies, UC
Berkeley
Embodied Mathematics
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About Mathematics and Technology
As part of our effort to build bridges between Mathematics and the
larger world, the Mathematical Sciences Research Institute is sponsoring
a seminar where mathematicians can meet adventurers on the technological
frontier. The Mathematics and Technology Seminar (formerly known as
Empennage) will meet in the MSRI lecture hall Tuesday afternoons from 2
to 3.
The seminar is intended to bring together not only scientists
from the Bay Area involved directly with mathematical computing, but
also people involved in envisioning and implementing new technologies,
people concerned with the social and political ramifications of the
development of information technology, and people working on problems,
the formal nature of which brings them close to mathematics. The
seminar is aimed at breaking down the walls which in this century
have isolated mathematics from intellectual life outside of its own
tradition.
While the Empennage seminar is still in its infancy, we have
begun to attract an audience beyond MSRI, including scientists from
other institutions and disciplines, both within and without academe.
If you have any recommendations for possible speakers, please let me
know: Joe Christy, j...@msri.org, (510)643-6069.
There is a majordomo mailing list for the Mathematics and
Technology seminar. To subscribe, send email to
majo...@majordomo.msri.org with body:
subscribe empennage
The Mathematics and Technology Seminar has a Web page at
http://www.msri.org/local/computing/empennage/
About MSRI
The Mathematical Sciences Research Institute (MSRI) is an
independently funded research institute located on the UC Berkeley
campus, high above the Lawrence Hall of Science. At any given time,
MSRI is host to 50 to 100 post-doctoral fellows and more senior
researchers who come from all over the world for periods of a week to
a year. Most of them participate in one of two topical programs which
change from year to year, with a smaller group in "Area III", our
catch-all. Currently the programs are Stochastic Analysis and Harmonic
Analysis.
directions to MSRI are available at the URL:
http://www.msri.org/local/directions/
About the word "empennage"
Empennage is the French word for fletching - the act of putting
feathers on the tail of an arrow. This makes the arrow fly straighter
by giving it a spin.