VaRManager - delivering more than a number
Value-At-Risk (VaR) is a number used to help manage risk in a portfolio. The math is established and proven and used commonly on nearly every trade floor. This is just one number.
With VaRManager, the VaR number has backup. Using the proven math library of Financial Engineering Associates (FEA), VaRManager produces VaR across up to 12 user-defined categories such as commodity/trader/region.
With VarManager, you can expect the following features included among many others in a robust tool:
- Searchable Transaction and Historical Price Databases.
- Security provided through password protection and customized access.
- Extensive on-screen menus, pull-down lists and selection buttons.
- File import capability for historical price and transaction data.
- Monte Carlo and Analytic VaR calculations controlled from a single screen.
See more detail and more scenarios in less time
VaRManager allows for scenarios and stress tests to test thesis and sensitivity.
Depending on time requirements, corporate risk policies, portfolio size, and portfolio linearity/non-linearity; Analytic, Monte Carlo, and Historical VaR models are all available within VaRManager.
Time tested analytics from FEA: Additive Sub-portfolio VaR
VaRManager decomposes total portfolio VaR into additive sub-portfolio VaRs by any two of 12 user-defined fields. This allows the user to calculate the contribution to total VaR of each trader, each region, each strategy, each counterparty, etc. Additive sub-portfolio calculations can be done using an automated process which calculates the undiversified VaR at the same time.
This gives not only what the impact of a new deal, but also where the impact is. Risk management can isolate where the high risk trades are coming from quickly.
Latest Technology
VaRManager stores results into a SQL database. This allows for extensive reporting and analysis such that user-based Business Intelligence is possible. The data is open for access to other users where appropriate security access has been granted.
VaRManager has the ability to schedule VaR calculations and batch process VaR runs. This means that not only will you get the VaR number, you will be able to regularly run your scenarios and stress tests without having to be in front of the computer.
Lights Out Operation
During implementation, Macro can work with your IT group to design automated interfaces with your various data sources. Then using the batch scheduling in VaRManager, the VaR calculations can be run automatically with the results from possibly several scenarios and/or portfolios ready for review.
Implementation Assistance
VaRManager can be run on a stand-alone basis or as an addition to an existing deal-capture system.
Macro Enterprises can provide full instructions for user-driven implementation, turnkey implementation services, or anything in between.
Implementation support and follow-up support is essential to success. Macro has the experience for any project.
Automated Cash-Flow Mapping
VaRManager™ automatically shreds each deal into its component cash flows, and allocates those flows into currency, commodity, equity and maturity "buckets".
VaRdelta
This patented process rapidly evaluates candidate transactions for their VaR-improving qualities, without requiring time-consuming portfolio-wide VaR recalculations.
Component VaR
VaRManager™ decomposes total VaR into additive component VaRs by currency, commodity, equity and maturity.
Additive Sub-portfolio VaR
VaRManager™ decomposes total portfolio VaR into additive sub-portfolio VaRs by any two of 12 user-defined fields. This allows the user to calculate the contribution to total VaR of each trader, each region, each strategy, each counterparty, etc. Additive sub-portfolio calculations can be done using an automated process which calculates the undiversified VaR at the same time.
Monte Carlo, Analytic VaR and Historical VaR
VaRManager™ performs delta-mapping analytical VaR, Monte Carlo VaR, or Historical Simulation VaR using Financial Engineering Associates' derivative pricing models.
Extensive Instrument Coverage
VaRManager™ supports a large set of cash derivative instruments.
User-Defined Fields
VaRManager™ allows the user to define up to 12 fields in transaction records for categorizing and sorting deals. These can be specified in pull-down menus or input as alphanumeric fields.
Price Data Options
VaRManager™ supports the internal generation of custom volatility-correlation datasets using historical price data, as well as the use of Risk Metrics volatility-correlation datasets.
Missing Price Estimation
Expectation maximization (EM), various interpolation, omit-day, and prior-day methods are provided to accurately replace missing prices in historical price datasets.
Decay Factor Optimization
The decay factor can be automatically optimized to minimize forecasting error. Alternatively, the user can specify a fixed decay factor and tolerance to control the weight given to prior price observations.
Adjustable Observation Window
Backtesting and other analyses are easy to conduct because you can specify the starting and ending dates of the observation period.
Variable Confidence and Horizon
Specify any confidence level and set the forecast horizon to any period from one day to several years.
Zero-Coupon Curve Generation
VaRManager's™ analytics convert quoted rates on coupon-bearing bonds and swaps to zero-coupon rates, accounting for the payment frequency and day-count basis.
Currency Rebasing
Results can be expressed in local currency terms or rebased to any specified currency.
Stress Testing
Portfolios can be stressed, and mark-to-market changes can be determined, using a variety of user-designed price shocks. The stress testing can also be applied to the user-defined field categories.
Equities
Asset risks can also include equity quotes for stock prices. Equity positions without dividends can also be included in the portfolio
Extensive transaction types covering array of instruments
VaRManager supports an extensive array of transaction types, covering interest rate, currency and commodity instruments, and new types are being added continuously. Covered deal types include:
- 2 Asset Spread Options
- 3 Asset Spread Options
- Asian Options
- Best-Of Options
- Bond Forwards
- Bonds
- Cash Flows
- Commodity Futures
- Commodity Index Swaps
- Commodity Physicals
- Commodity Swaps
- Commodity Swaptions
- Conventional Options
- Currency Swaps
- Differential Swaps
- Equities
- Floating Rate Notes
- Interest Rate Swaps
- Money Market Instruments
Sample Screenshots
A sampling of the screens used in the VaRManager solution are available here. Click a thumbnail below to view it's screenshot. Alternatively, you can use the following link to launch a slideshow of all screens.
VaRManager provides extensive search functionality for imported deals.
Batch jobs are scheduled to run automatically on a predefined basis or can be run manually as needed. Batch jobs contain one or more process commands.
The Autoprocess command uses FEA's MakeVC library to create Asset, Volatility and Correlation files based on user-defined parameters and historical prices.
The Create Portfolio command uses VaRManager's filtering functionality to build a portfolio file of deals on which to compute VaR.
The Run VaR command uses FEA's VaRLib library to compute VaR results based on user-defined parameters and previoiusly-generated portfolio, volatility, correlation and asset files.
The RunVaR command can be configured to run Analytic, Monte Carlo, Historical, Sub-portfolio, or Incremental VaR, as well as, perform Stress Testing.
VaRManager contains a command center that allows for the setup of user-defined batch jobs.
VaRManager provides functionality for importing and validating transaction data.
VaRManager provides form based deal insert and edit capabilities, complete with data validation.
VaRManager stores all results in a database and provides an embedded windows style file browser and viewing window for accessing standard output reports, error logs, import files, and working files. The output reports are organized by batch name and processing date.
VaRManager provides search and edit functionality for all imported prices, interest rates, and FX rates.
VarManager provides functionality for importing and validating commodity prices, interest rates, foreign exchange rates, and equity prices.
VaRManager allows for up to 12 user-defined, validated or freeform fields on all deals, for searches and deal categorization.
VaRManager allows the user to define and save stress files and scenarios with multiple shocks per scenario. Single price points or entire curves can be shocked in each scenario.
VaRManager allows the user to define and save stress files and scenarios with multiple shocks per scenario.
Single price points or entire curves can be shocked in each scenario.
All VaRManager outputs include the Analytic VaR and Mark to Market results, and will include other results as necessary based on user entered parameters.
Analytic VaR output includes a Cashflow Map, Component VaR, Undiversified VaR, and VaRDelta graph for each price curve.
Monte Carlo VaR output includes a P/L Frequency histogram.
The Historical VaR output includes a daily VaR histogram as well as a P/L Frequency histogram.
Sub-portfolio VaR output includes a graph of the Component VaR by sub-portfolio split.
Sub-portfolio VaR can be computed based on one or two split fields.
Incremental VaR results include the change in the underlying Value at Risk resulting from addition of the trades in the Candidate portfolio. This change could be positive (risk increasing) or negative (risk reducing).
Stress Test results include the change in Mark to Market resulting from each applied Scenario.
