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Wednesday, April 29, 2015

Dyman Associates Risk Management Review : The Unfolding Role of Risk Managers -- New Demands, New Talent

Melissa Sexton, CFA is the head of Product and Investment Risk for Morgan Stanley MS +1.21% Wealth Management. Prior to this, she spent nearly a decade serving as Chief Risk Officer at two different hedge funds in New York. Most of Melissa’s 25 years of experience has been in a variety of risk management roles, though she has also traded derivatives and worked in operations, and has continuously worked on projects which integrate risk management with information technology. Ms. Sexton is a member of PRMIA New York’s steering committee, received a BA in Mathematics and Economics from Boston University, and was awarded her CFA charter in 2001.

Christopher Skroupa: You started your career in risk management in the 1990s, a decade notable for rapid changes in information technology combined with extraordinary growth and development of financial products. How have these changes affected the risk management function over your career?

Melissa Sexton: The changes have been significant and continue to be. When I started in the field, the most sophisticated financial instrument was an exchange-traded option – a standardized product with fully transparent pricing and contract terms. Software for standardized products can be commoditized and developed fairly quickly, but products with multiple triggers and non-standard underlyings meant that technology and risk models needed to be flexible and much more complex. And risk managers needed to be knowledgeable not only about valuation models and the nuances of different financial markets, but needed to have more of an enterprise view of risk. The risk function in the early nineties was largely focused on managing market and credit risks, but the massive growth of over-the-counter (OTC) derivatives, also known as off-exchange trading, led to increased counterparty, operational and liquidity risks. It also led to a need for enhanced Know your Customer (KYC) controls, which support a business in verifying the identity of its clients, to manage reputational risk.

Skroupa: Can you compare and contrast your previous role of chief risk officer at a hedge fund with your current role managing investment and product risk at a large, complex organization like Morgan Stanley Wealth Management?

Sexton: In many ways, the roles are quite similar because most risk management positions require a blend of quantitative and financial expertise, technology and communication skills. It will always be essential that risk managers are able to influence behavior. But the biggest difference I experienced while working at hedge funds was the emphasis on stress testing and liquidity risk management – both fund liquidity and asset liquidity. This is because of the higher leverage employed in most hedge fund strategies and the prevalent use during the financial crisis of gate provisions, which limited the amounts clients could withdraw from funds. I worked closely with clients during this hectic period which gave me insights into their unique needs and circumstances.

At Morgan Stanley Wealth Management (MSWM), we are also focused on individual client needs and circumstances, but the size and scale of this business differs materially. With more than 16,000 financial advisors and approximately $2 trillion in client assets, we need to focus on clients and their accounts, but also financial advisors, financial markets and the multitude of investment products and solutions we offer. Continue reading…

Monday, April 6, 2015

Dyman & Associates Risk Management Projects: New Chip can Turn Smartphone into 3D Scanner

With 3D printers all but widely-known now, it only remains to have an accurate and portable 3D scanner to practically produce anything on-the-go. The current 3D scanners are all bulky and very expensive but we may soon have that functionality installed in our smartphones.

A team of CalTech researchers led by Ali Hajimiri has designed a small camera chip that can enable a smartphone to do an accurate 3D scan of an object.

The tiny silicon chip called nanophotonic coherent imager (NCI) only measures one millimeter square and can conveniently be placed within smartphones. It uses a type of Light Detection and Ranging (LIDAR) technology in capturing an item's width, depth and height. Basically, a laser is shined on the object so the light waves that bounce off of it can serve as guide for the imager when capturing the measurement data.

The technology used on the chip is further explained by Caltech:

"Such high-res images and data provided by the NCI are made possible because of an optical concept known as 'coherence'. If two light waves are coherent, the waves have the same frequency, and the peaks and troughs of light waves are exactly aligned with one another. In the NCI, the object is illuminated with this coherent light. The light that is reflected off of the object is then picked up by on-chip detectors, called grating couplers, that serve as 'pixels', as the light detected from each coupler represents one pixel on the 3-D image."

According to Dyman & Associates Risk Management Projects, LIDAR technology is commonly used in self-driving cars, robots and precision missile systems due to its effectiveness in identifying locations and objects. Although the concept of LIDAR is not that new, their idea of having "an array of tiny LIDARs on our coherent imager can simultaneously image different parts of an object without the need for any mechanical movement" is a novel one.

Basically, every pixel on the sensor can separately assess the intensity, frequency and phase of the reflected waves, thereby creating a piece of 3D information. The combination of all those pieces of 3D data from all the pixels results in the full 3D scan.

Caltech's concept allows for the development of a tiny and relatively cheap scanner without sacrificing the accuracy. Dyman & Associates Risk Management Projects reported that the new chip can create scans that closely resemble the original within microns.

At present, the prototype Caltech has made only has 16 pixels on it, just enough to scan small objects such as coins, but they are reportedly working on scaling it up to thousands of pixels.