Futures - Options - Swaps - Forwards - Default Risk - AIRS - Legal
Because risk is a fundamental element of business, it is important that managers properly assess and manage it.
Are derivative products mathematical monsters?
About the Author
Mark Glitto is a financial risk strategist at First Union National Bank. In managing the $5.6 billion credit card portfolio, Mr. Glitto's risk assessment includes revenue and loss forecasting, underwriting, acquisition & securitization issues as well as economic evaluation.
At the University of Florida, Mr. Glitto researched financial issues including spreadsheet-hedging analysis and the use of liner programming and computer simulation in financial decision making and portfolio management. His seminar lectures covered financial risk management issues and his thesis, Derivatives: Merging Legal Treatment and Financial Risk Management, examines the legal aspects of derivatives and the use of risk management in advancing corporate objective.
Mr. Glitto is a member of the Florida Bar and practiced law in Tampa, Florida. He received his BA, Cum Laude, from the University of Iowa, his JD from the of Illinois College of Law and MBA from the University of Florida. His law practice centered on commercial litigation and lender representation in state court and creditor representation in Federal Bankruptcy Court.
Introduction to Risk Management
Risk is pervasive. Corporations face currency exchange fluctuations, developers rise and fall with interest rates, and transports are subject to the daily changes in the price of oil. All businesses are subject to business cycle and everyone fears higher taxes. Because uncertainty is so prevalent in business, managers must learn to cope with it.
Risk management is a broad discipline. In order to be effective, risk management must be a core part of the overall management of a system. A risk manager must deal with insurance, technological systems, regulatory and legal issues, political exposures, and both micro and macroeconomic fluctuations. For example, in assessing a communication system, a manager must be aware that the system failure can caused by failure of the hardware, the software, the organization, or the staff members.
My lectures start by providing a basic understanding of a firm's risk profile. I emphasize understanding, and then managing, the risk. My hope is that the lectures will provide insight into the great latitude of modern risk management
Risk Management Lectures
My risk management lectures and papers are outlined below. I gave these lectures at the University of Florida during the summer of 1997. They are largely based on Managing Financial Risk by Smithson and Smith with Wilford. The lectures provide a basic introduction to the goals of risk management and the tools (derivative products) which are used. Special thanks to Professor Mark Flannery, Barnett Banks Eminent Scholar of Finance, at the University of Florida, for his patience and insight in reviewing these lectures.
"Never have I seen a subject about which people know so little" -George Salem, bank analyst, Prudential Securities as quoted by Steven Lipen "Heard on the Street," WSJ Dec. 1 1993, page C1.
"[Derivatives are] simply another Wall Street-developed house of cards." -Representative Joseph Kennedy as quoted by Barbara A. Rehm, regulators Try to Reassure Lawmakers on Swaps," American Banker, October 29,1993, page 3.
"You can call it [the use of derivatives] whatever you want, but in my book it's gambling." -Representative Henry Gonzalez, Chairman, House Banking Committee, Ibid.
"Futures and options are the tail wagging the dog. They have also escalated the leverage and volatility of the markets to precipitous, unacceptable levels." - John Shad, former Chairman SEC and current CNBC news commentator, Managing Financial Risk, Smithson and Smith with Wilford.
My legal practice focused on state-wide representation of lenders. Representation included commercial and residential foreclosures, closings, document preparation, bankruptcy, eviction, real estate litigation and all related matters. Legal services were rendered in accordance with FHA/VA/PMI requirements. I have provided expert testimony to the City of Tampa, Board of County Commissioners, on condemnation and foreclosure issues. I have tried over ten cases to final conclusion. Some of my legal writing is listed below along with an appeal I wrote to Florida's First District Court of Appeals. I included Judge Feikens' opinion in the Proctor & Gamble case, which is must reading for anyone interested in the legal aspects of derivatives.
The following documents do not constitute legal advice or opinion. Mr. Glitto gives legal advice or opinion only with respect to particular facts and only after conflicts of interest have been cleared and/or waved and after being retained as counsel.
Across Italy on a Bicycle
In 1992 I toured Italy on bicycle. My journey started at the southern most tip of the mainland in the small town of Villa San Giovanni. I bicycled north along the Mediterranean sea through Salerno and Naples. My route then went inland threw Assisi, Spolito, Perugia and north to Florence. My "Giro de Italia" ended just north of Florence.
During my travels I pushed my bicycle up to the top of Mount Vesuvius, camped out on Anzio beach, were the Americans landed in World War II, saw the ruins of Pompeii and ate a lot of linguini.
My Italian vocabulary improved to the point were I could understand which road lead to Rome. It was always "Sempre Diritto" straight ahead! As the saying goes, "all roads lead to Rome." One warning, if you ever bicycle through Italy watch out for the long, dark, tunnels.
1000 miles on the Appalachian Trail
The Appalachian Trail trail is a continuous path that runs from Maine to Georgia following the spine of the Appalachian Mountains. I have hiked sections of the trail from the rugged, exposed peaks, of Maine's Mahoosuc Mountains through the old growth forests of the Nantahala Mountains in North Carolina. During my hikes I experienced life at a monastery in New York, a primitive farm in Virginia and watched 4th of July fireworks from a mountain top in Connecticut. The trail is very accessible and hiking it is like walking through history. Even a couple hours on the trail is a tranquil, rewarding experience.
"Remote for detachment, narrow for chosen company, winding for leisure, lonely for contemplation, it beckons not merely north and south, but upward to the body, mind, and soul of man." -Harold Allen, on the Appalachian Trail.
Futures - Options - Swaps - Forwards - Default Risk - AIRS - Legal
(c) Copyright 1997 Mark A. Glitto. All rights reserved.