Credit and Market Risk Measurement and Management
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.
As new regulatory frameworks are falling into place, not least, the new rules enabling banks and securities firms to measure counterparty credit risk for repo and securities financing transactions, as well as over-the-counter derivatives using advanced exposure modelling and simulation analytics firms need to produce new analytics such as Expected Positive Exposure (EPE). EPE is now a key element of the capital treatment of counterparty credit risk and Razor supports all flavours of EPE calculations.
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. 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.
All risk measures are integrated within the Razor Limit and Excess management framework, so limits can be managed for both market and credit risk seamlessly within a single application. Flexible limit definition and risk definition rules allow limits to be managed in real-time at any or all levels of user-defined hierarchies.
For further information, please contact us.
Resources
White Paper: Achieving Accurate Value at Risk (VaR) Calculations
This paper examines the reasons behind the perceived failure of risk management up to and during the economic downturn. It also outlines how VaR can be a highly accurate measure if it can measure and factor in dynamic changes in the underlying portfolio holdings, ensuring that ‘non-normal’ events and cyclical macro-economic issues are taken into account.