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We believe that at this point, model risk should have effectively been removed. The backtest
stage, K | V Stage 2, outputs must:● Meet the design and development input requirements of the implement stage.
● Either contain or make reference to trading/investment system acceptance criteria for
Gate 3.
● Specify trading/investment system characteristics necessary for proper implementation.
● Be in a form that allows verification against the Money Document.
● Provide information necessary for purchasing third-party components.Also, as part of the portfolio review process at the gate meeting, new trading/investment
systems will again be evaluated and prioritized, working trading/investment systems
reviewed, enhanced, or aborted, and resources reallocated to higher priority projects. Gate
meetings are a good time to review the market and the economic environment. The port folio
review process will again be affected by changing market and economic conditions, new
trading/investment opportunities, hedging considerations, and functional inter dependence
among new and working trading/investment systems. Top management should consider
the current investment cycle and its projected effect on the profitability of the portfolio of
systems, as well as look forward to what the investment cycle might be when the trading/
investment system is launched after Gate 3.18.1. Portfolio Review
Gates serve as a checkpoint to ensure that individual projects remain on schedule, on
budget, and financially and technically viable. But, no project exists in a vacuum; each
project competes against all others for resources and gate meetings are natural opportuni-
ties for portfolio review.
Portfolio management for new trading/investment systems is a dynamic process where
the list of active and new trading/investment systems is constantly under review and
subject to revision. In this process new projects are evaluated, selected, and prioritized.
Existing projects may be accelerated, killed, or reprioritized with resources reallocated to
more promising projects. Portfolio decisions are often fraught with risks and confused by
new information, including:● Changing market opportunities.
● Multiple and disparate corporate goals and strategic considerations.
● Multiple decision-makers and even their geographic locations.Portfolio review is further complicated by projects in the portfolio that are at different
stages of completion, by limitations on people, time and money, and by interconnected-
ness among different development projects.^ Portfolio management processes must con-
sider all these things.
For projects that pass through any gate, management must also consider how the
project should be prioritized within the overall portfolio of trading/investment systems.
For fast-paced companies like proprietary trading firms and hedge funds, the portfolio
is especially dynamic; at the most successful firms, management makes a strong com-
mitment to the decision and prioritization process. Successful firms build their prod-
uct strategy into the portfolio from the ground up using both top-down and bottom-up
approaches, considering both market opportunities and core competencies.18.1. P O RTFOLIO REVIEW