DECIDE Market Risk
Along with counterparty risks, market risks in the trading and banking book play a key role in performance optimization and investment decisions in financial markets. Since the last financial crisis, they have increasingly been a focus of regulatory minimum requirements.
DECIDE provides you with an overview of individual and company-wide exposures caused by market changes (e.g. financial crisis in 2008, interest rate hike, Brexit, etc.). This allows you to achieve optimal final decision support in order to actively initiate the necessary actions to minimize exposures. DECIDE supplies market data in flexible contexts for the purpose of evaluating market risks and gives a clear overview of results, from sophisticated models for valuation of individual positions to a general picture of market risk.
The “depth” of DECIDE RISK is also a crucial factor in the quality of market risk assessment. Detailed drill-downs for Value-at-Risk and profits & losses as well as comprehensible results enable better understanding of the model. The evaluation and presentation of the component VaR per position possibilities/risk class facilitates the identification of risk drivers and hedges. The chronological order of the risk contributions facilitates analysis of unusual data situations. Market scenarios can be defined along modular lines, which simplifies ad hoc analysis and the implementation of stress tests at all hierarchical levels of the enterprise.
Options for reliable assessment of market risks
- Proactively manage exposures & risk drivers
Manage exposures and risk drivers company-wide in neartime, make the necessary decisions promptly, and take the necessary action.
- Modular definition of market scenarios and analyses
Respond directly and proactively to changing market conditions based on scenario analysis and stress tests. Simple ad hoc analysis and implementation of stress tests at all levels of the sector and company hierarchy.
- Comprehensible results
Detailed drill-downs for Value at Risk and P&L improve understanding of the models. The timely process of the risk results enables the analysis of unusual data situations.
Market risks under control, supporting performance and investment decision-making capability at any time
Assessment of standard and complex products
Since the last financial crisis, market risks in the trading and banking book have received particularly close attention with regards to regulatory minimum requirements for performance optimizations and investment decisions in financial markets. The implementation of the regulation guidelines in accordance with FRTB / CRR II therefore plays a major role. Continuous monitoring and limitation of risks is also required.
With DECIDE RISK, you are also well prepared and directly able to take action in this area. You analyze all standard products in accordance with mark-to-model and have the opportunity to structure complex products and perform various assessments.
DECIDE has up-to-date assessment methods and procedures for all common securities and OTC instruments, including FX swaps, CDS, interest-bearing and complex options. A multidimensional scenario analysis enables you to test and demonstrate the various impacts of counterparty and marketplace strategies and assess risks for security asset classes and individual instruments. Quantification of the exposure is based on risk measures such as basis point value (BPV), Value-at-Risk (VaR), and expected shortfall (ES) methods and rating migration risk calculations. The following methods are available for calculating them:
- Monte Carlo and historical simulation, parametric procedures
- Backtests & stress tests
- Transparency through drill-downs
- Single-scenario analysis for traders
Advantages of DECIDE Market Risk
- Displays current market price risks
The calculation of Value-at-Risk and expected shortfall in realtime facilitates the reliable presentation and assessment of market price risks.
- Introduce new products rapidly
DECIDE RISK’s comprehensive instrument coverage of DECIDE RISK facilitates the fast, cost-effective introduction of new products. Non-standard instruments can be structured based on cash flow structure, options, and path dependencies.
- Appropriately separate risks
Systemic and instrument-specific risks are reported separately.
- Implement specifications completely
In DECIDE RISK, the sensitivities for FRTB (SA) can easily be exported.
- Flexible valuation of models
DECIDE RISK supports model validation via clean backtests, binomial tests, and Christoffersen’s tests.
- Active trading support
Detailed scenario analysis and correlation-based hedging recommendations provide sound support for trading.