Market Risk August 2021

Market Risk August 2021

Published:

August 31, 2021

KRM22 continues to develop, improve, and enhance our Market Risk offerings. It was once said “The market waits for no one….”

Our risk services are continually evolving to meet the demands of changing markets and to deliver the “best practices” of market risk management.

The bullet points listed below highlight some of the recent updates KRM22 has delivered in our At-Trade and Post-Trade Stress systems.  This includes new features, enhancements to existing functionality, as well as specialty functions that allow users to accommodate “corner cases” of portfolio stressing which more accurately define their portfolio’s risks.

 

At-Trade Risk - Real Time P&L & Margin

  • Asset class expansion to include FX forwards and Non-Deliverable Forwards (NDF). Interpolation of forward curves for accurate pricing using available and flexible market data points.
  • Expanded Exchange Margin coverage including Dalian Commodity Exchange and Zhengzhou Commodity Exchange for a more complete view of risk.
  • Margin Breakdown Report by Account, Level, Exchange, and Commodity Code exposing the use of margin dollars by account or by firm. See the example report below detailing IM, MM, Total IM, Total MM,Long/Short Option Value, Net Option Valueand other margin valuesby account and exchange.

  • Intraday Net Option Value “NOV” calculations based on theoretical option pricing to reflect Total Margin values more accurately. This value can also be used for intraday Exchange calculations.
  • Limit Alerts on based on TNE ratios vs. Margin to expose potential risks or immediate risks.
  • Intraday revaluation of collateral due to changes in FX rates isolating P&L due to currency fluctuations.

 

Post-Trade Stress

  • New configurable risk reports allowing for the customization of KRM22 risk output.
  • “Kill Switch” functionality to communicate with third-party systems to suspend trading of a given account(s).
  • Stress functionality allowing the use of front month implied volatility as the basis for the volatility shocks of all expirations. Most popular during volatile market periods.
  • “Spread Breaking” function divides spread contracts into their native component contracts allowing for proper delta offsets against “non-spread” futures contracts.
  • Configurable “Expiration Time” per contract more accurately reflects the risk associated to related instruments with differing expiration times on the same day.
  • “Minimum Price Move” feature adjusts the magnitude of Sdev Stress move when the prescribed Sdev move falls under a minimum price increment. This feature is a fail-safe against “under-stressing” a price move and provides more meaningful risk values. The screenshot below has a 7 -day, 4-Standard Deviation (Prices = 4), log normal price move configured in the KRM22 Risk Template. The user has also described a “Min Move” setting of 20%. If a 4 Standard Deviation move is less than 20% of the current price, a 20% price movement will override the value of the 4-StandardDeviation price shock to ensure a proper magnitude of stress.