Risk exposure in capital markets – real time
By Mark Moorman, SAS
In the capital markets world, money never really changes hands; it only passes through them, and then only digitally. These markets are fast, immense, complex networks of extremely large amounts of monies or goods. In one single day on the London stock market, more than 700,000 trades may occur at a value of over £4 billion. In this environment, understanding the value at risk (VaR) becomes a complex, timely problem.
One large UK bank decided it was time to evaluate its risk across all of its trading books. Being able to consolidate this VaR – and get the data within minutes – would give the bank an incredible edge over competitors that continue to trade on individual books and are working from VaR data as much as two days old.
It was time for a change, and the bank decided to deliver a high-performance, automated VaR calculation and reporting process for market risk managers. This would allow the managers to spend more of their time evaluating risk rather than investigating data discrepancies. Of course, this was a major undertaking. To do this, they needed to focus on four major issues:
Timeliness / Transparency / Accuracy / Granularity
The bank built a system that would allow them to aggregate the data on the fly into a single repository. So instead of waiting until the following day to get the latest reports, the risk management team can have an up-to-date view of their risk exposures on an intraday basis using the latest blended view of interim and official risk figures to help inform the business decisions in a timelier manner.
It was then possible to use drill-down graphing and analytic tools to make sense of this complex environment – all before the closing bell – and change course if the VaR exceeded their risk appetite.
Making decisions on the fly
ESP allows complex business decisions to be made on massive amounts of data in real time. The bank can now evaluate every trade – singularly – before the deal is made, and then accumulate it with other current trades to evaluate trends. Finally, the bank can synchronize this data with the global corporate data. In fact, this technology means the bank has:
But it turns out VaR is no longer an adequate measure of risk. Nor is it capable of informing senior management of the true nature of their market and credit risk exposures.
For full transparency and the level of detail required by the business, many different types of analyses are now required including, but not limited to: economic VaR, sVaR (stressed value at risk), transient concentrations, extreme value, abnormal correlations and stress tests.
Advanced, high-performance analytics lets risk managers quickly and easily explore a wide range of scenarios to help both senior management and the business be better informed about the true nature of the exposures on their trading books.
This story appears in the Third Quarter 2013 issue of