- Banks
- Enterprise-wide risk management
- Bank Strategy & Profitability Management
- Treasury and Asset Liability Management
- Liquidity Risk Management
- Credit Risk Management
- Market Risk Management
- Applied financial engineering
- Basel II and regulatory compliance
- Compliance, regulatory and statutory reporting
- Systems integration
- Training and seminars
- Asset manager
- Insurance Companies
- Corporates
Market Risk Management
Our experience: Your advantage
We advise our clients in all aspects related to market risk – modelling, practical IT implementation and business process setup. We can look back on many years of experience in this field: We have been helping banks as early as 1997 to implement internal models compliant with CAD 2. We work closely with our clients in the banking and (in the context of UCITS III) asset management industry to develop and enhance risk management models and processes. We have practical implementation experience with all the relevant model selection and development aspects, e.g. Value-at-Risk (VaR), Monte Carlo simulation, historical simulation, non-linear risks, spread risks, specific equity and interest rate risks (residual and event risks), clean back-testing methods, and the design of adequate stress tests. Of course, our clients also have to solve the typical system performance challenges: based on actual implementation project experience, we intensively discuss with them the validity of available (semi-) analytic approximations for the aforementioned methods.
From selection to implementation. And beyond.
We do not stop at model selection and conceptual design. We also collaborate with our clients during the selection and hands-on implementation of appropriate IT systems that will optimally support their risk management process. Over the years, we have worked together with all of the major system vendors and we are familiar with the advantages and disadvantages of their software solutions. We can draw on this experience to benefit your selection and implementation project. Together we can ensure that you will swiftly achieve your project objectives.
Many of your peer institutions rely on historically grown system infrastructures, partially based on in-house developments. In such cases, we validate existing systems and processes with respect to methodological and mathematical accuracy, or work with our clients to enhance these systems in order to meet new trading or regulatory requirements, e.g. during a new product process or a model extension. We also help them to plan how the necessary adjustments can be made as smoothly and efficiently as possible, even in a heterogeneous system landscape.
Our architecture advisory work for banks and asset managers has at times also included data management (re-)design, data migration and normalisation, data enrichment and/or integration of new data sources, reporting adaptations, process adaptations (as required), and retirement of (parts of) legacy systems (as appropriate).
Waiver submission and regulatory approval
Financial institutions need to consider whether to use their internal market risk model for determining their trading book capital requirement and for regulatory reporting. By gaining regulatory approval, a number of our clients have been able to substantially reduce their regulatory capital, either via a direct waiver submission, or via extending an already existing model to cover specific equity and interest rate risks. The key challenges are often not posed by theoretical and model-related issues alone, but by data problems and system parameterisation. We have accompanied many banks in the process of overcoming these issues, helping them to achieve their objectives in spite of the difficulties.
We can discuss with you the benefits of deploying an internal model and which issues must be given particular attention during the preparation of the required documents, and the waiver submission and supervisory review process. We can help you to safely obtain regulatory model approval, and do even better than that: Indeed, many of our clients have achieved very favourable market risk multipliers, down to a zero regulatory capital add-on.
If you already have an approved model, we can also help you to remedy any remaining shortcomings in an efficient manner.
One step further. The impact of Basel II regulation on market risk practices
The regulatory environment is changing as well. Although market risk does not represent the focus of Basel II / CRD, a few key changes have been made. No bank that currently uses an internal model or wishes to use one in the future can afford to ignore these changes. In recent years, the FSA and many other European national supervisors have begun to demand that banks with internal models include spread risk and specific interest rate risk. Basel II provides for the abolition of the current surcharge factor, which has been replaced by a requirement specifying that banks include event and default risks in their risk models.
At the same time, banks that use internal models will be permitted to use these models to measure their counterparty credit risk (CCR) exposure, subject to certain conditions. This represents a key step towards risk-sensitive and quantitative capital adequacy. The good news from your point of view is that we have already worked with a number of clients on these issues.
Use our extensive experience to your advantage.
Contact details:
Dr Stefan Hengstmann
Tel: +852 3711 5800
