Replicating success

The financial crisis drummed home to many banks the advantages of quickly calculating exposures and executing hedges for complex portfolios. As a result, some banks are looking to the insurance sector and their use of replicating portfolios. By Clive Davidson

Anne Baxter, Aegon Scottish Equitable

Put yourself in the position of the senior management of a bank during the financial crisis. They see volatility climbing to unmatched levels and know the extreme markets leave them heavily exposed. But their portfolios are complex, and although their desks are piled high with risk reports, these are long and complex and full of arcane numbers and measures. Even when senior managers digest the reports, they are still faced with a key question: what is the most effective action they can take?

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