The first article in this series defined the business role of the enterprise risk management and the need for consistency between the analysis on a small set of assets and an aggregated analysis across the enterprise. We concluded that a consistent analysis requires a covariance matrix for factors across many asset classes. This article will evaluate the two challenges presented by the business case. First, the length of the time series of factor realizations is frequently different for...

Risk management for a financial enterprise requires both the aggregation of positions across asset classes and the understanding of risks inherent in those positions. Thie is by no means a trivial task for modern organizatins, which may control many hundreds of thousands of positions invested in a variety of instruments traded across the globe. In order to obtain a solution, smplifications have typically been made both at the level of aggregation and risk analysis. For example, assets may be...