Investment Controlling with SAS®
Identifying, measuring and steering risks
IDS GmbH – Analysis and Reporting Services (IDS), headquartered in Munich, Germany, with additional offices in Frankfurt am Main, is a provider of managed services in the financial services sector specializing in operational investment controlling. About 90 percent of its 150 employees from over 20 different nations have completed university studies in the areas of economics, mathematics, physics or computer science.
IDS is a wholly owned subsidiary of the global Allianz SE group. Its client list includes domestic and foreign capital investment and insurance companies within the Allianz group. Also, IDS is increasingly offering its services to companies outside the group. IDS' product portfolio includes supplying market data, analyzing and reporting on performance and risk data, and producing consolidated and customer-specific analyses and reports. The business model is based on a system architecture developed by IDS, on its own analysis models and on current, state-of-the-art market applications.
The task at hand
In order to ensure that it remains open to future developments, IDS must carefully select the product it uses in order to make certain that, in addition to offering stability and outstanding performance, it has the flexibility needed to provide customer-specific modifications and enhancements. In addition, the selected solution must integrate smoothly into the existing IT landscape at IDS.
To do this, a standard-delta-normal approach is used to calculate not only value-at-risk (VaR) performance indicators but also, as an IDS-specific enhancement of the SAS output, the contributions of individual investments and/or risk factors to the total VaR of a given portfolio (“contributional VaR”). In the event of significant nonlinearities, a Monte Carlo simulation on the basis of the covariances estimated for the delta-normal approach is available to supplement the analysis.
Furthermore, for a series of portfolios the calculation of VaR is enhanced by configuration options for processing relevant position data and by the ability to generate SAS risk environments in a flexible manner by calculating a tracking error relative to the benchmark portfolio.
To provide the necessary histories, IDS can also access an existing market database in which price data for various investment types and vendors (such as Bloomberg, MSC and Lehman) are stored. Thanks to SAS software's performance capabilities, IDS can update risk factors used in the VaR calculation on a daily basis, including: estimated statistical parameters (variance, covariance) for about 6,000 stocks, indices and benchmarks; 2,000 interest curve buckets, including credit spreads; 250 implied volatilities; and over 50 currency parities.
On the basis of this data, dynamic risk environments are generated in batch mode using SAS Risk Dimensions in which the necessary VaR performance indicators are estimated at multiple aggregation levels. Finally, all relevant simulation results are exported into the IDS data warehouse. By using pass-through processing, the 1.5 million risk contributions calculated daily can be transmitted easily.
Supplementary scenario simulations are conducted at monthly intervals, and in the case of significant changes in the risk situation round off the risk profile analysis of the portfolio in question.
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VaR-Related Risk Analytics Team - Stefan Rädel, Gerhild Gabath, PhD, Katharina Luft, Michael Kathrein (from left)
To operationally determine market risk potential in compliance with UCITS III/German derivatives regulations for about 750 portfolios daily and implement a solution that provides stability, performance and flexibility.
SAS Risk Dimensions integrated seamlessly into the existing IT landscape giving IDS the ability to make customer-specific modifications and enhancements to risk calculations.
A flexible solution that allows custom modifications to meet the requirements of IDS customers.
“With SAS Risk Dimensions, we can provide our clients with clear and meaningful risk analyses that meet the particular requirements of the German derivatives regulations.”
VaR-Related Risk Analytics Team Lead