Inside the Volatility Zone
Asymptotix has in collaboration with Siag Risk Management and co-publishing with QFINANCE produced a White Paper on the Basel III and audit compliance and capital management requirements to speed up the delivery of portfolio VaR modelling, stress testing and reports.
The volatility zone exists T-0 for however long it may be until the T-1 position risk reports have been fully modelled and analysed in a multi hour/day batch process of typically 10 – 30 hours post reconciliation T-1.
To fully understand the precise nature of the technological challenge presented by the much needed elimination of batch processing for correct compliance and capital management it is necessary to first consider the actual process from the close of markets to the production of T-1 risk adjusted asset valuations and how this causes the volatility zone to be created.
It is self evident that the primary factor causing volatility zone risk blindness, conservatively shown at 10-15 hours as it is frequently double this time, is the time taken for the batch processing element of this key process to update positing information to core systems and the downloading times for updated position data to risk modelling engines.
Existing core legacy systems are unable to reduce this calculation and modelling time in such a way as to deliver Tier 1 portfolio T-1 risk visibility within a time period which would deliver portfolio revaluation and VaR reports at position and aggregated levels in time for risk positions and asset valuations to have been fully analysed and optimised trading decisions made before markets reopen T-0.
It is therefore logical to conclude that full compliance with regard to Basel capital, risk management and audit compliance requires the elimination of unnecessary multi day batch processing thus producing the correct balance sheet declaration of accurate risk adjusted asset values and the correct management of capital provision to cover the probability of loss exposure as indicated by portfolio VaR modelling and stress testing as at T-1 positions. This information must be available for analysis prior to the commencement of T-0 trading and forms the basis of compliant and efficient regulatory capital management.
The effective solution to these challenges has been developed by Siag working in legacy environments with a correspondent understanding of the issues to be addressed and the technical complexities associated with any implementation of a coherent and effective solution. A viable solution must not demand total core system renewal and yet must satisfactorily resolve all of these risks and deficiencies in a technologically advanced and comprehensive manner within the existing client system landscape.
Siag operates through its partnership network in Europe, Asia and the USA. The Siag leadership team is aware that however advanced the Siag Risk Engine and Data Management environment, what really makes the difference to you our client is its people. Siag’s partners are an extension of that. Only the most advanced technology delivered by the most experienced competent people can make the difference to your requirements in the ‘Volatility Zone’ and it is here that Asymptotix stand alongside Siag – able to help. Asymptotix has deep domain expertise in this space and has assisted Siag in the shaping of the Solution Design of the product set described here. This partnership is available to assist you in the challenges addressed in the paper.