Market Risk Evaluator Features
Yield curves are delivered in different currencies for different maturities.
When the import is completed, MRE unifies all yield curves to a uniform grid of grid reference points and interpolates missing values. Likewise for exchange rates.
Market risk is driven by the time structure of payments from asset and liability transactions.
MRE rolls out cash flows for all transactions. Once saved, you can use this data also for other purposes in the bank.
For each market factor, determine how you want to represent it in the simulation.
Is the factor always positive or can it also take on negative values? Is the forecast horizon short term or long? Is mean reversion relevant?
The dependencies between the factors are determined by the system on this specification from the market data. As a result, the market model is closed.
The model is calibrated on the current market data before the simulation.
In the case of long-term forecasts, payments are due in the meantime.
They indicate strategies according to which the free cash flows are reinvested in the simulation.
The simulation answers the question of how great the risk is and how it is composed.
You get the development of the portfolio value over the forecast horizon as well as values at risk and the contributions of each individual market factor to the portfolio risk.
You always know where the risk is in the portfolio and where and how you can start hedging the risk.
Define market shifts and stress tests on market factors and see their immediate and delayed effect on your portfolio value.
Fulfilment of regulatory analysis obligations is thus freed from technical problems.
Does the model match the actual change in interest rates? Does the portfolio fluctuate in value within a range as predicted?
With MRE you can do portfolio-independent backtesting on the market factors. And fully automate it.
On the portfolio you do a clean or dirty backtesting. Also automated.
The forecast horizons can be freely selected for backtesting. You can see exactly whether you hit the short-, medium- and long-term forecasts.