Risk Control and Management
In the course of the last years risk management has become more and more important for many financial institutions. Increasing regulatory pressure as well as the needs for improved internal risk control have shown that also smaller institutions need sound solutions. Risk needs to be analyzed through the trade life cycles and the risk figures show impacts across the organization. Also the new evolutions in the financial markets such as central clearing require risk management on a high level.
UnRisk’s solutions for risk management work across multiple asset classes and a vast variety of risk factors to improve your understand of the sources of risk. Market risk, liquidity risk, credit- and counterparty risk as well as method- and model risk are all covered by our systems.
Risk Management Solutions
Instrument Analytics is the very heart and the historical beginning of UnRisk software products. A fast and robust valuation of instruments under various models is the foundation for more elaborate solutions, like risk management and counterparty credit risk.
This is the backbone and work horse of our solutions. Written in C++ it covers:
- Model Calibration: Parameter identification, in such a volatile environment the financial markets offer, is hard task. UnRisk calibration is based on advanced regularization methods to overcome difficulties arising from noisy, unreliable data and to solve even ill-posed inverse problems efficiently.
- Valuation: For the solution of the forward problem (valuation) UnRisk chooses among different methods including the solution of PDEs with Finite Difference/Finite Element schemes, the solution of SDEs with (Quasi-) Monte-Carlo methods as well as direct integration methods like Adaptive Integration and Fourier based techniques.
Highlights of the used methods include:
- Finite differences schemes with special attention to upwinding techniques. Upwinding schemes need to be applied to cure the instabilities occurring if partial differential equations arising from mean reversion models are discretized.
- To reduce the number of discretization points in the discretization process of PDEs and to further speed up the calculations the finite element method is used. Emphasis is laid on the assembling process of the global matrices and the incorporation of boundary conditions. Similar to the finite difference technique stabilization terms are added if the finite element method is applied to convection-diffusion-reaction problems.
- For higher dimensional models Monte Carlo schemes are applied. To reduce the number of paths, and therefore the computation time, variance reduction techniques are applied. For several tasks the Quasi Monte Carlo utilizing low discrepancy sequences instead of pseudo random numbers is the method of choice.
- To incorporate early exercise features into the valuation of instruments requiring larger numbers of risk factors the least squares Monte Carlo method is used.
- In order to speed up the calibration process very fast valuation of vanilla instruments need to be performed. For these cases Cosine-Fourier based methods are used.
On the one hand asset managers struggle to come up with the returns seen before the financial crisis, on the other hand pressure from regulators increases further limiting their opportunities. Use UnRisk products to get more information, to make valuations from single instruments to whole portfolios across scenarios. The advanced technology used by UnRisk products helps your company to automate and streamline operations improving the analyzation and monitoring process.
Use the huge amount of built-in statistics and visualization capabilities to define your own key ratios and present them in a dynamic way.
UnRisk provides an innovative solution for investor advisory, relying on simple and streamlined processes to analyze, simulate and monitore investment portfolios. The aim of using UnRisk solutions for investor advisory is to:
- improve the quality of the advisory process
- reduce the liability risk by applying internal controls
- improve revenues by a cost reduction for the advisory process
To reach these aims UnRisk investment advisory solutions have the capabilities to
- make comprehensive risk and allocation analysis
- perform standard and individual scenario analysis
- provide risk and performance related key ratios
- accompany the whole advisory process until the trade offer
For further information see www.unriskomega.com
Counterparty Credit Risk
In recent years we have seen an incredible change in pricing financial products. This change has mainly been driven by the credit crisis turned into a sovereign debt crisis in Europe. Although a simplification of instruments has been observed in the market, the inclusion of various value adjustements (xVA) has taken the complexity of the valuation of even those simple instruments to a new level. Credit risk measurement and capital allocation, are nowadays all based on an increasingly complex mathematical and IT machinery.
UnRisk solutions for Counterpary Credit Risk (CCR) use Monte Carlo engines in combination with fast solvers for PDEs to allow users to calculate:
- PFE, NEE, EE, ENE, EPE
With these information and key ratios at hand we give users the ability to calculate, analyze and limit exposures and minimize capital charges for Basel III compliance. Users can value new trades and can perform What-If analysis analyzing the trades impact on the CCR and its related key ratios.
UnRisk PRIIPS Module
What are PRIIPs?
Packaged retail investment and insurance-based products (PRIIPs) is a broad category of financial assets that are regularly provided to consumers in the European Union (EU) through banks or other financial institutions. For these assets regulators require the financial institutions to provide unified key information documents (KIDs). KIDs shall provide information about risk, costs and possible future scenarios of the instrument and its value to make these quantities comparable between different assets, also across different asset classes.
What information is in a PRIIPs-KID?
To make PRIIPs-KIDs readable and comparable there are strict guidelines for form and content of the document. Information that needs to be incluced contains:
- Type and properties of the product
- Possibilities of the loss of capital
- The cost structure of the product
- The risk profile of the product
- Performance of the product based on given scenarios
What does the UnRisk PRIIP solution provide?
The UnRisk PRIIP solution offers a modular system for the automated calculation of all relevant key risk ratios as well as for the production and the management of PRIIPs-KIDs. The system is based on the bank proven UnRisk Engines. It is installed on-premise and uses market and instrument data provided by the financial institutions. The calculation of the key ratios follows the regulatory requirements and performs the following steps:
- Building up market data scenarios
- Calculation of all relevant cash flows
- Valuation of instruments at the required time points
- Calculation of the required key ratios (risk, costs)
The covered product universe includes interest rate caps and floors, FX forwards, FX and equity options, all sorts of bonds, swaps, inflation linked products, cross currency swaps and structured equity linked products.
The KIDs tool provides functionality for the production and the management of PRIIPs-KIDs. Features include:
- Versioning of the PRIIPs-KIDs
- Extensive search capabilities (full-text search, key ratios, instrument properties,... )
- Editor to create the text blocks with internationalization
- Monitoring system with alerts