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Derivatives’ Risks and Risk Management: Part 2—Organizational Risks  


Author:  Matthew Kluchenek.


Source: Volume 23, Number 05, May/June 2010 , pp.8-28(21)




Journal of Taxation and Regulation of Financial Institutions

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Abstract: 

This concluding section of a two-part article addresses the organizational risks—that is, strategic, operational, valuation, legal and compliance, reputational, and systemic risks—that financial institutions using derivatives may face. The author suggests a number of risk mitigation measures and summarizes steps the industry has already taken to reduce the risks in this area. (Part 1, published in the March/April issue of this journal, explored several risks arising from the use of derivatives—market risk, liquidity risk, credit risk, and leverage risk.)

Keywords: risk mitigation; policies and procedures; documentation OTC transactions; valuation models; central counterparty clearinghouse; hedging transactions; “rogue trader” losses

Affiliations:  1: Henderson & Lyman.

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