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Investment Risk and Uncertainty: Advanced Risk Awareness Techniques for the Intelligent Investor by Steven P. Greiner

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CHAPTER 20

The Future of Risk Management and Analytics

Steven P.Greiner, PhD; David Mieczkowski, PhD; William F. McCoy, CFA, PRM; Andrew Geer, CFA, FRM; Daniel S. Mathon, PhD, CFA; Viviana Vieli; Christopher Carpentier, CFA, FRM; Mido Shammaa, CFA, FRM; and Sameer R. Patel

The role of technology in shaping risk management cannot be understated. Its evolution has taken risk management along with it. Imagine trying to estimate a factor model or perform a mean-variance optimization with a slide rule. Imagine again trying to sift through tick data for trading opportunities. Imagine trying to back-test any sort of strategy. Risk management was implicit because it had to be before computers. No one focused on correlation, because you couldn’t compute correlations with a slide rule. Looking at any five- to 10-year span, it’s hard to argue against the advances in risk management available to practitioners being due to the advancement of technology. In the 1980s, computer memory was measured in kilobytes; in the 1990s, megabytes; in the first decade of the 2000s, gigabytes; and now memory is measured in terabytes. It doesn’t take a PhD to make an extrapolation that by the 2020s exabytes (1018 bytes, of which 1015 would store the entire contents of all the libraries in the United States, leaving 1,000 times that much empty) will be the working descriptor for computer memory.

This is a dominant theme in investing in general, as there has always been vastly more pertinent information available ...

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