Integrated Market & Credit Risk: An Active Risk Management Dialogue

Tuesday, June 14, 2022 | By Deepika Vajja, Associate Director, Algorithmics Technical Presales

Integrated Market & Credit Risk: An Active Risk Management Dialogue

The economic impact of the COVID-19 pandemic, similar to the 2008 Global Financial Crisis, shows that correlations between market and credit factors tend to be more pronounced in extreme market conditions. In order to respond to, or even stay ahead of such impacts, an integrated approach to market and credit risk analytics is key to success.

Integrated market and credit VaR measure (PCR) models for P&L distribution can capture the impact of defaults and corresponding losses where market-risk only VaR (PCRM) models do not. And the expanded insights from an integrated approach extend beyond P&L. By revealing issuer/obligor credit transitions and corresponding valuations over time in a quick, digestible way, stakeholders across the organization can more actively participate in risk analysis, and more confidently engage in discussions about possible portfolio amendments.

In particular, risk managers can use integrated market and credit risk models to evaluate the impact of simulations on projected cash flows and better understand the liquidity profile of the portfolio. When such models come with an interactive dashboard, risk managers can drill down to the contributing positions and market movements that can stress the portfolio, as well as make revisions where the modeling assumptions don’t fit their needs.

The benefits of this approach to risk management can be felt across the business, with risk and business teams being able to make informed decisions on how to balance their portfolios’ performance and risk. SS&C Algorithmics' unified financial risk platform powers risk-aware decision-making, streamlines risk analytics and delivers a high return on investment.

To learn more about implementing a comprehensive stress testing framework, download our "Integrated Market & Credit Risk – An Active Risk Management Dialogue" whitepaper.

Insurance, Regulation, Risk Management

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