The market risk management system is a comprehensive risk management solution designed as risk control module for all organization levels and the whole company. It provides risk analysis and management tools such as VaR calculation, VaR break down, VaR back-testing, stress testing and scenario analysis, and follows the Basel II market risk regulations.
- Main function：
- VaR calculation engine
- Parametric method: the linear method is used to quickly assess the risk of financial commodities, while the non-linear derivative financial products use the Delta-Gamma method to calculate the equivalent risk. In addition, fixed-income products are subject to risk factor disassembly through cash flow mapping, calculating risk parameters with historical data, adjust risk statistical parameters with EWMA, and utilizing optimized numerical calculation techniques to improve performance of large-scale matrix operations.
- Monte Carlo simulation method: provide a complete Monte Carlo simulation and historical simulation of the future trend for each risk factor.
- Historical simulation method: historical simulation method can be used to calculate the VaR.
- VaR presentation:
-Indicate Marginal VaR, Incremental VaR, Component VaR, Unit VaR and Un-diversified VaR according to the organization level and product category.
-Risk factors such as Sharp Ratio, Beta, Delta, Gamma, Theta, Duration, Convexity, and PVBP are displayed according to different product characteristics.
- ◎ Backtesting
- Based on user-defined trust interval and position holding period, calculate the number of times the unchanged profit and loss and actual profit and loss figures penetrate the VaR during a past period, and provide a complete verification report to measure the efficiency of the internal model method, as to meet the requirements of competent authority regarding model quality and quantity.
- Stress testing
- Users can set specific conditions or a special event, such as the Financial Crisis or presidential elections as market conditions and designate the whole or a specific position to simulate the current profit and loss situation of the same position when the same event occurs.
- Performance Indicator RAROC.
- Provide user with risk adjusted compensation figures for performance management.
- Situation analysis
- The user can define the risk factor’s movement interval to calculate investment portfolio sensitivity and re-evaluate the investment portfolio’s value or VaR according to different risk factor changes set by the user.
- Market data processing and risk parameter analysis
- The historical data or statistical parameters needed to calculate VaR require fast computing technology and an extensive database, covering statistical parameters, volatility, correlation coefficients and any related risk coefficients. The system server at the client’s end can quickly calculate the required market risk statistical parameter value according to that day’s position and provide the disclosure and download function to facilitate verification work from the user unit.
- Reports
- The system provides several risk-management reports that comply with competent authority regulations.
- Users can also use Excel to set output fields and record user habits, design new reports to facilitate subsequent research and analysis.
- Provide risk parameters for calculation to facilitate digital verification of VaR.
- Provide custom report tools to meet the needs of report output for different purposes.
- System security control
- System administrators can set user permissions based on internal control needs.
- System user roles can be defined by the user.
- The system usage status maintains a complete record file for subsequent verification and use.
