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Sep 26, 2022

Willow Tree: Risk Modeling for RFR under LIBOR

As financial markets transition from IBOR to SOFR, new valuation methodologies are emerging to replace the ones used to model forward-looking rates. For banks and asset managers using tree valuation to price interest rate contracts, especially those with early termination right by either holder and/or issuer, the Willow Tree method can relieve some of the challenges presented by other models.

Jul 6, 2022

More Banks are Moving Asset and Liability Management Systems to Cloud

A recent SS&C Algorithmics survey (conducted by Alchemer) shows 45% of respondents are looking to migrate, or have already migrated, their Asset Liability Management (ALM) systems to the cloud. This is a major global shift from ALM being almost always in-house and shows that both banks and regulators are increasingly accepting cloud for ALM risk technology.

Jul 5, 2022

A Cloud Solution for FRTB Reduces Costs and Saves Time

Fundamental Review of the Trading Book, or FRTB, was introduced following the 2008 global financial crisis as a boundary between the trading book and the banking book. This shifts risk measurement from value at risk to a wider view of market liquidity risk, requiring banks to calculate more complex and risk-sensitive models than in the past.

Jun 6, 2022

Measuring Active Risk in Defined Benefit Pension Plans

The portfolio of a defined benefit (DB) pension plan is often described in terms of its market value exposure—such as a “60/40” mix between risky assets (equities) and less risky assets (bonds). While “asset mix” is an easy way to describe the broad level of risks in DB portfolios, it is not the best way to think about the pension risks that matter for at least two reasons. First, while the asset mix explains why some funds are riskier than others, even a static asset mix (same 60/40) has a changing risk profile over time. For example, equity sectors—such as energy or technology—become more or less concentrated over time even when the portfolio is invested passively (e.g., S&P 500 Index). Second, what matters for optimizing portfolios is the marginal risk contributions that assets make relative to their expected returns.

Feb 25, 2022

EBA Proposals Eye Enhanced Credit Spread Risk and Standardized NII

With interest rate hikes now almost a given in the medium-term horizon as a result of increasing inflationary pressure, European regulators are shifting their focus to ensure financial institutions are prepared to weather associated impacts. In December 2021, the European Central Bank (ECB) announced its supervisory priorities for the triennium of 2022-2024 where “Sensitivities and shocks to interest rate and credit spreads” are clearly identified as a key vulnerability for the European banking sector, and therefore, a supervisory priority for the period.

Feb 18, 2022

The Open Protocol’s New Crypto and ESG Requirements: Are You Ready?

Risk disclosure and transparency are fundamental requirements for asset managers, investors, and regulators alike. By enabling consistent and accurate reporting of regulatory capital, liquidity risk, and other risk factors, the Open Protocol Enabling Risk Aggregation (Open Protocol) has become the standard for risk self-reporting in the hedge fund industry.

Jul 9, 2021

A late revival of counterparty credit risk modeling

Counterparty Credit Risk (CCR) modeling became popular in the early 2000s as B2 entered into its final phase. Many banks rushed to develop their own approaches or acquire third-party vendor solutions for counterparty credit risk exposure measuring and management. 

Jun 17, 2021

The dawn of a new wave of internal models for Solvency II

At the onset of Solvency II, only a selected group of insurance and reinsurance undertakings—very unevenly distributed across European regions—went for an internal model approach. Five years have passed, during which the risk management culture has matured, with complex ERM systems being adopted by an increasing number of companies.

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