Our Response
Razor Risk Technologies assists financial institutions to address the complex issues surrounding risk management – issues that were brought to the forefront during the economic downturn with the collapse of institutions such as Lehman Brothers. From our experience, in order to measure and manage risk effectively, it’s necessary to manage the total exposure of a financial institution across all its global activities.
Our response was Razor, an award-winning risk management framework and the latest milestone in Razor Risk Technologies' quest to advance risk management practice and oversight. Razor is a high performance valuation, risk management and control product for financial institutions. Razor enables organisations to effectively address their economic capital, market, credit and liquidity risk management requirements, both on an enterprise and a departmental basis.
Razor is a comprehensive, yet flexible, methodology that links disparate sources of risk and provides a means to calculate the risk/reward trade-off within a single, unified framework. Since it is a framework and not a risk measure, practitioners can easily incorporate new sources of risk and accommodate innovations in supervision and risk management best practice. Neither practitioners nor regulators are 'locked' into formulaic approaches to risk.
Razor also accounts for all events and scenarios between the present and some future time horizon. Since the framework explicitly incorporates the passage of time, it allows for portfolios that change over time and under differing scenarios. Thus, a more realistic assessment of risk is possible. A real world example of how the passage of time effects portfolios and risk measurement was given on January 28, 2008 when Bloomberg.com reported that Merrill Lynch's value at risk was calculated at $92 million, as compared to actual losses from the credit crisis of $18 billion, 200 times larger than measured risk levels.
Razor supports a full range of methodologies for calculating credit and market risk exposures, and calculates VaR using both Historic and Monte Carlo simulation. Monte Carlo simulation is widely recognised as the most accurate technique for calculating risk, especially credit risk. But all too often financial institutions must compromise between accuracy and speed of calculations. Razor was designed specifically to eliminate this problem, allowing you to calculate credit and market risk using Monte Carlo simulation overnight, intra-day or in real time.
Razor includes both traditional approaches to value at risk and credit adjusted value at risk and a much more modern approach: a dynamic multi-period credit-adjusted Value at Risk (VaR). This flexibility allows market risk managers to replicate legacy systems while moving forward to a more modern approach that allows multiple VaR horizons and an analysis period as far beyond the traditional 10-day VaR calculation as the user thinks is appropriate. Many Razor users, for example, look at VaR analysis where the time horizon is over many years. Consequently, challenging issues such as dynamic changes in the portfolio, cash flows being re-invested, default adjusted VaR, marginal VaR and other complex risk measures across all asset classes including non-linear OTC derivatives can be effectively addressed.
Razor has already helped transform the way Banks, Hedge Funds, Brokers, Central Clearing Counterparties and Stock Exchanges in many countries, measure their risk and manage their capital. Razor’s globally announced clients include ANZ Bank, Australian Stock Exchange, Calyon, Federal Home Loan Bank Pittsburgh, HSBC, International Derivatives Clearing Group, KPEI, LCH.Clearnet Group, the Man Group plc, Royal Bank of Canada and Treasury Corporation of Victoria.
Razor Risk Technologies believes that the Razor framework will profoundly affect the way institutions manage risk and allocate capital, leading to better and more extensive risk management worldwide.
For more information, read more about Razor here or contact us.