System analysis

»We need to understand our VaR backtesting results.«

»We need to review our P&L predict/explain methodology for multi-currency portfolios.«

Even when all your valuation and risk management software is in place, the risk analysis of trades, structures and portfolios can be a challenge. Are the risk reports missing any risks? Or double-counting some? Are the models calibrated correctly? How sensitive are the results to the uncalibrated parameters? Are the calculations numerically stable?

Here are some typical examples of market risk analysis:

• Calculation of risk sensitivities (»greeks«)
• Scenario risk analysis, including multi-factor scenarios (e.g., spot and volatility) and multi-asset scenarios (e.g., basket of stocks)
• Stress testing, jump analysis, regime switching, correlation swings
• Portfolio dynamics (P&L predict, P&L explain)
• Value-at-Risk (VaR) and Expected Shortfall (ES) calculations

We analyse model risk too, for example:

• Model suitability assessment
• Price testing: are the model and its parameters consistent with the market?
• Calibration quality checking
• Over-hedge methods
• Model parameter risks, model parameter stability analysis
• Stress-testing models