Global Market Solutions SAS 29/31 Boulevard Charles MorettiStation AlexandreF-13014 Marseille 

T: +33 (0) 4.91.37.06.38W: http://www.globms.com

Risk-adjusted valuation engine

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Review of business requirements

Example text

Global Market Solutions

Risk-adjusted valuation engine

Conclusion

Implementation story-board inspired from our experience

Optimization, Completeness, Accuracy, Extendibility, Auditability, Scalability

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Review of business requirements

Example text

Global Market Solutions

Risk-adjusted valuation engine

Conclusion

Implementation story-board inspired from our experience

Optimization, Completeness, Accuracy, Extendibility, Auditability, Scalability

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Risk-adjusted Valuation Engine

Trading & 

Structuring

Finance &

Risk M

anagement

SalesForce

CVA

Desk

•Liquidity / Funding adjustment•Balance sheet usage

•Portfolio Management•Hedging with Greeks •Advanced and stress what-ifs scenarios  at portfolio level•Assessment of trade profitability

•Pre-deal limit check•Regulatory outputs•Position valuation•Attribution analysis•Accounting

 •What-if scenarios (new trade / closeout / restructuring)•Real-time matrices

Review of business requirements (1/2)

Keep in mind that there are many other actors as senior management, collateral management…

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Business Requirements Functional Requirements

Bank Portfolio level • Full product coverage

Assessment of profitability                                      … on pre-deal

• Accuracy• Real-time

What-if scenarios • Exhaustive scenario sets• Decision helping tool

Regulatory outputs • Stressed CVA VaR with back-testing capabilities

• Easy plugin for new ratios or analysis

Review of business requirements (2/2)

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Review of business requirements

Implementation story-board inspired from our experience

Optimization, Completeness, Accuracy, Extendibility, Auditability, Scalability

Example text

Global Market Solutions

Risk-adjusted valuation engine

Conclusion

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Optimisation Dimensions

COMPLETENESS AUDITIBILIY

PERFORMANCE SCALABILITY

ACCURACY

EXTENDIBILITY

USER FRIENDLINESS

Some axis are negatively correlated :– Accuracy vs. Performance, - Extendibility vs. User-Friendliness-.

Innovative Technical solutions help meeting the challenges.

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Completeness

Handling the bank portfolio without duplicating a Front-to-Back system

Being able to quickly support new instruments –e.g. KI Target Forward, new market data – e.g. IR spread curve, Model factor-, new risk mitigant technics – e.g. ATE- or static data –e.g. Calendar-.

Ability to handle multi-phases project

Rely on Standards: ISDA standards for static data -

Calendar, Date Rule …- FpML representation for 

instruments Markit, Reuters, Bloomberg for 

market data Deep functional analysis to 

identify necessary and sufficient data

Robust relational data model APIs for an easy and fast plugin 

is a key factor Module-based solution

PROBLEMATIC …OUR EXPERIENCE

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Accuracy in numbers

The accuracy in the portfolio and CSA data representationso Fixings, Break-clauses, OIS 

discounting

The quality of market data or curves –e.g. correlations-o Market data selection/clean-up 

tool

The models and pricing methodso Calibration, Brute Force and 

American MC 

Generated curves vs. raw market data

Brute-force vs. American Monte-Carlo

Rescaling based on trading desk NPV

Wrong-way risk Portfolio and Credit Data –CDS 

spreads- are real-time / Market data on demand: Explanatory Real-Time CVA

LINKED TO … …OUR EXPERIENCE

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Auditability

Regulatory audit Requirements from financial 

institutions to identify input data, helping to verify and demonstrate the results quickly and with accuracy

Internal audit purposes Optimization, fine-tuning, 

debugging…

The more modular the better Efficient dump and log files 

management Relational data model –to 

enforce consistent data- Back-testing capabilities –

processes should be easily re-run-

REQUIREMENTS …OUR EXPERIENCE

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Extendibility

Due to the perpetual evolution of the banks and regulators, the CVA system should be opened to changes:

- Input: Support of a new trade type, illiquid counterparty…- Processing: Plugin of a proprietary pricing model, handling a new risk factor…- Output: Interface with existing systems –booking hedged trade, Credit Limit …-, 

definition of new metrics or reports –CRD IV not finalized, Basel IV expected?-…

These enhancements do not have to affect the rest of the application

A solution- A modular framework- With dedicated functional and technical APIs- Developed on a proven technology

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25 Risk Factors 

5000 Paths 100 Steps

2000 Customers 5000 Netting Sets

Technically simple in theory

Discount (Interpolation)

Payoffs

~  unit pricing

500 000 Trades

10000 Collateral Sets

Simulations

 Aggregatio

n 

Multicore

GPU

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Performance Oriented Development

User “simple” request  intensive computation

• KPI Driven Development• Separate concerns : abstract distribution layer• Domain Specific Language (script payoff)• Real scalability :

– Avoid contention from design (e.g. database)– Network latency : data affinity– Vectorize the problem– Distributable  aggregation : Map / Reduce  algorithm

• Real-time event driven architecture

What if ?

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• Hybrid Algorithm:– Automatic Differentiation– American Monte Carlo & Monte Carlo

• Hybrid Hardware:– Parallel Device (GPU, Multicore, Intel MIC)  & CPU (Grid, Cloud)

Hybrid Architecture

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Review of business requirements

Example text

Global Market Solutions

Risk-adjusted valuation engine

Conclusion

Implementation story-board inspired from our experience

Optimization, Completeness, Accuracy, Extendibility, Auditability, Scalability

Architecture with think-forward approach forecasting upcoming Business Requirements (big-data, real-time event technology for pre-deal check and Explanatory PNL)

API based approach on each step of the process chain, so bespoke components & quantitative intelligence is pluggable on demandVarious mapping APIs allowing quick-n-easy mapping definitions across pre-existing systems

StandardsNecessity for market standard protocols: CORE integration of FpML (ISDA-based) or Markit tickers 

Full-integrated APIs allowing flexible business requirement analysis and concept-testing

Fast adaption upon new market conditions and business opportunities

Powerful Front-End for pre-deal check and porfolio scenario testing (what-if)

Efficient Go-to-Market Deployments & Low Maintenance Costs

CONTINUOUS RISK-ADJUSTED VALUATION

ENGINE LIFE-CYCLE

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CONCLUSION: Which goals to achieve in a successful implementation?

Robust Monte-Carlo Engine for high-performances computations

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Risk-adjusted valuation engine

ThankYou!

Global Market Solutions is specialized in Financial Software integration, Credit-Adjusted Software development and project management. Our clients are international investment banks & leading Software providers. The underneath 

architectures are highly innovative. We are delivering Solutions to our customers in a dynamic environment.