Risksvr™ is a highly optimized financial risk management calculation
server.
Originally designed to provide leading edge integrated market, credit &
liquidity risk analytics to Risk Professionals, Risksvr™
is now available to all users who need to optimize the risk return profile of
their portfolio.
You can benefit from Risksvr's™
tremendous power immediately by creating your own private account or by downloading the
Risksvr™ engine and setting it up on your personal computer, dedicated
server or inn-house web server.
Risksvr™ provides a long
list of advanced risk measurements. for example, you can measure the likelihood, sensitivity and impact Market, Credit and Liquidity
events will have on your trade(s), position(s) or portfolio(s).
By the same token, you can measure the
diversification benefit and concentration risk of each risk factor that is embedded in
the trade or position that belong to your portfolio(s).
In today's volatile marketplace
Risksvr™ can easily make the difference between boosting your profits or losing your shirt!
This document is a brief overview of the Risksvr engine. For further details,
please refer to the Calculation Guide.
Risksvr offers the four standard approaches to measure Market Risk:
Historical.
Monte-Carlo.
Parametric.
Stress Testing or What-If Analysis.
In the Historical simulation you forecast events by using the price history to observe what would happen if past events were repeated in perhaps a different sequence.
In the Monte Carlo simulation you forecast events by generating stochastic movements from random paths.
In the Parametric simulation you use price sensitivities to observe assumed worst-case movements.
In the Stress Test simulation you measure the impact changes will have on your portfolio. These might be changes completely unrelated to your own holdings. If this is the case Risksvr will use the structural properties between assets to measure their impact, all other things remaining equal.
These four methodologies rely on the evolution of market risk factors: Individual Interest Rates Vertices within and across term structures, Spread curves, Foreign Exchange Rates, Equities, Commodities, with or without stochastic convenience yields, forward rates and Option Implied Volatilities (Smiles across Strikes & Maturities).
Additionally you can incorporate structural breakdowns, which are so typical of market crashes and therein assess the full impact of six sigma events on the value of your portfolios.
Risksvr accumulates results directly on a bushy tree where each leaf accumulates independent distributions of returns. This approach is similar to holding an xml tree in memory. This means you can associate any computed value with one or a series of tags and then proceed to "transform" by slicing and dicing the results into reports that are deemed strategic to your business. This approach offers limitless possibilities in terms of risk measurements.
Liquidity
To measure Liquidity risks, Risksvr incorporates price slippage in different ways:
You can define additional days taken to unwind a position or you can actually increase stochastically your bid-ask spreads as you simulate throughout time. In this case and depending on your assumption you have defined. (Stationary Vs non-Stationary), the model will either increase time scale and/or select altogether different sampling frequencies on the measurement and simulations of returns.
As a byproduct of liquidity risk, Risksvr provides the facility to measure and stress overnight funding costs to simulate pressure on the cost of carrying your positions.
To measure Credit
risks, Risksvr applies a random counterparty default model based on stochastic recovery
rates, default probabilities and transition matrices. An individual transition
matrix can be defined for each simulation horizon.
Risksvr extends beyond the fixed 1 year horizon and provides a model that can
incorporate the full term structure of default probabilities, default
correlations, hazard rates and / or transition matrices.
Risksvr is based on a generic architecture of conditional defaults. This means you can extend standard default triggers that are usually based upon default probabilities associated with ratings, to incorporate other events that could also create states of default. (such as large FX or Equity price movements that could affect a party's exposure. Risksvr offers the mechanism to measure bilateral and multi-lateral netting across counterparty hierarchy. RiskSVR recognizes obligor specific risks according to your own pre-defined mappings. (usually country and industry).
Risksvr includes the possibility to simulate country risk (political risk) by simulating losses associated with exposures in a given country. This feature gives you the power to forecast losses associated with currency devaluations.
With Risksvr you can measure funding gaps and long term profitability scenarios of positions. You can therefore take into account movements of collateral posted to fund these positions.
By design and for efficiency, Risksvr accumulates marginal sensitivities of the trade's contribution with regards to other holdings that form a position and portfolio. This means you can request the risk sensitivity of the percentage weight of each individual trade with regards to Absolute or Relative VaR. This has important consequences in terms of hedge analysis, real-time value-at-risk and portfolio diversification and concentration effects.
The
Importance of Mapping.
Risksvr™ has been designed with user friendliness in mind.
Risksvr
comes with a number
of default settings in order to estimate and simulate market prices and instrument
fair values.
The idea behind this
philosophy is: If you
don’t ask, you probably don’t need to know!
This obviously makes your life a lot easier, since you do not need to mess
around with complex setup values which only Risk Management professionals are
aware of.
It is however important to note these assumptions can always be relaxed or
refined.
You too can benefit from Risksvr™
without the pain and complexity associated with financial risk management.
Create your account, enter your portfolio and press compute to start measuring your risks now!