Customizable Risk Management Framework

Sharable and consistent set of valuation and risk management tools

Analytic Space is customizable risk management framework designed to enhance risk analysis, capital allocation and portfolio analysis capabilities for the trading, risk and valuation teams within financial organizations.

A scenario often encountered in financial institutions is that trading, risk and valuation teams often work as rival units, rather than cooperative groups. This is often due to the lack of an operational framework that facilitates collaboration and transparency between the groups.

Utilizing a centralized service approach, Analytic Space combines market data, pricing models and risk analytics into a readily sharable and consistent set of valuation and risk management tools. Analytic Space effectively addresses a number of desk level risk management issues including:

  • Modeling Bid-Ask spread
  • Bid-Ask spread implications for long term profitability
  • "Unwarehousing" of risk
  • Decomposition of risk and P&L by product type and maturity
  • Dependency between market sensitivities and VaR
  • Assessing maximum potential loss due to model risk and computational limitations
  • Pre-configured and pre-calculated market objects

The calculation of risk adjusted factors (e.g., CVA, FVA, KVA, VaR) is often undertaken independently by different groups with financial organizations with their results combined into reports. Such an approach for deriving risk adjustments fails to take into account all available information, does not allow for effective capital allocation and lacks an understanding as to the sources of capital utilization. A holistic approach is required to effectively address capital allocation and other risk provision processes.

The centralized risk management framework employed by Analytic Space provides a readily sharable and consistent set of valuation and risk analysis tools that facilitates effective communication and idea flows between front office and capital allocation groups. Such an improved communication flow can help identify and quantify hidden risks and provide for an effective and quantifiable capital allocation management framework.

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