Tanya S. Beder and Leslie L. Rahl have formed Capital Market Risk Advisors Inc., New York, a consulting firm specializing in derivatives risk management.
Both previously worked independently as consultants to treasury operations, pension funds and money managers, including mutual funds.
Ms. Beder said business for the new firm is brisk, given the widely publicized derivatives-related losses at various institutions. She noted that now is an important time for users of derivatives to not overreact to derivatives use.
"Many people seem to be on a witch hunt for derivatives in their portfolio," Ms. Beder said. "In many cases, removing the derivatives increases their risk" instead of reducing it, she said.
The firm is stressing education for derivatives users and recommends derivatives be broken into four general categories: derivatives whose prices can be looked up on a screen; those for which at least three dealers will quote a market price; those that can be priced based on assumptions about the security; and those in which the owner is the market.
Once that division is made, the user can look to where risk lies, and perform stress analysis as to how much market change the user is willing to tolerate.