Choosing your Risk Exposure
Risksvr is a holistic calculation engine: it can compute and aggregate both market and credit risk statistics during the same simulation sequence.
The Exposure Type determines the type of
Risk the engine will be aggregating. According to the Exposure Tzpe you
have defined, zou can either run Market Risk,
Credit Risk or any of it's variants, or both}
Choosing your Exposure
Exposure depends on methodology:
Monte-Carlo And Historical are Simulation methodologies,
They allow both Market and Credit Risk Analysis. (Historical Simulation allows Credit Exposures,
Defaults are possible with "mixed" simulation. i.e. historical for Risk Factor Simulations and Random Draws to
observe Credit Default Losses).
Correlated-Delta-Gamma (aka Parametric or Riskmetric) is a DV01 scenario based
market risk factor methodology. It does not age positions and therefore is
really only appropriate for short terms (usually over-night) market risk factor measurement.
If you have selected a simulation Methodology, you can select the following Risk Exposure Types:
- Market Risk
- Credit Risk
- Market And Credit Risk
- Credit Risk Net All
- Credit Risk Disable Netting
The most important types are Market Risk, Credit Risk and Market and Credit Risk
The type of risk exposure selected will obviously affects largely the kind of results obtained.
If you select Market only, Credit Exposures, Credit Losses and Country Risk will not be available.
For example, if you need to measure your current and projected Country Risk, you
must activate a Risk Exposure that includes Credit.
This is necessary since your exposure to country risk is measured through the
receivable credit exposure of all accounts belonging to parties that have
existing exposures that cannot be compensated locally.
This means these
trades are affected both by close-out netting, collateral and other credit
related factors.
Once you select your Exposure type, you can proceed to select the different types of Analytics you want the engine to perform.