Get a Detailed Overview of Cloud Based Solution Models
A fully featured Historical or Monte Carlo VAR calculation. Specify attributions for VAR (breakdown by market segment), proxying of rates, confidence interval, and any risk roll-ups up to global VAR. Need to run historical scenarios on groups of curves, together or separately, parallel or non-parallel shifts, absolute or relative, by industry sector or liquidity ranking? It's all there, and the same stresses can be reused for market, credit, and collateral calculations. Ready for FRTB? Vector Risk delivers a pre-packaged solution, whereby curve definitions contain the categorizations (credit quality and industry sector, market cap, economy and commodity bucket). Trades contribute automatically based on the risk factors they attach to for pricing. The sensitivity definitions are generalized by currency and type, meaning the number of actual definitions is kept to a minimum, and complete risk coverage is assured. The sensitivity results become the inputs to our standard model calculation, which generates the capital numbers at the desk level and for the enterprise as a whole.
For PFE, we use real-world Monte Carlo parameterized from your historical data. You can see the effect of netting and collateral, track path-dependent events such as option knock-outs, and apply correlations and stochastic processes appropriate to the evolution of different market rates.
Vector Risk calculates xVA and sensitivities using full Monte Carlo simulation with risk-neutral curve evolution. The sensitivities are calculated in the Monte Carlo by running extra scenarios to shift each risk factor up and down. This is a very intensive calculation, but Vector Risk's vectorized makes it possible. CVA DVA, bilateral CVA, FVA, FCA, and FBA are all supported.
FRTB INTERNAL MODEL
The Internal model requires a large number of historic or monte carlo simulations (stress period, current period with full and constrained factors, all at five liquidity horizons). Vector Risk bundles all of these simulations into a single task and applies the Basel formula across the expected shortfall results to give the regulatory capital. By simply linking your business unit hierarchy to the internal method, the system runs the calculations at desk level and for the enterprise as a whole. The requisite supporting analytics, including VaR, Backtesting and Theoretical P&L, are supplied, as is a calibration calculation to identify the stress period in the history set.
The International Swaps and Derivatives Association developed the standardized margin methodology to reduce the potential for disputes and create efficiency through netting exposures. The model applies a sensitivity-based calculation across four product groups: interest rates and foreign exchange, credit, equity, and commodities. Vector Risk is a licensed ISDA SIMM provider.
The Standardised approach for counterparty credit risk (SA-CCR) is the capital requirement framework under Basel III addressing counterparty risk for derivative trades. SA-CCR calculates the exposure at the default of derivatives and "long-settlement transactions" exposed to counterparty credit risk.
Examine the sources of change in your mark to market from one day to the next. Show P&L due to maturing trades, new trades, market movements (broken down further by risk type), and theta.
IFRS 9 requires the existence of an economic relationship between the hedged item and the hedging instrument. Vector Risk provides a prospective test using regression analysis of the historical simulation of changes in the hedged item and hedging instrument, and a retrospective test using the dollar-offset method.