I. FINrisk® trading portfolio capital charges calculator

The application has built-in connectivity to MoneyLine Telerate® and enables automatic price feed for commodity, equity, interest rate and foreign exchange instruments quoted both on organized exchanges and by OTC brokers. Trades are broken into underlying positions for valuation and add-on risk calculation. The exact procedure is specified either by Capital Adequacy Directive for banks, issued by Slovak National Bank, or Capital Adequacy Directive for securities dealers, issued by Slovak Securities Exchange Commission. The latter directives are expected to merge following the release of Basel II Capital Adequacy Directive in 2005.

The results are capital charges for up to ten risk categories, credit and market, identified for any trading portfolio together with regulatory revaluation. XML interface logic enables users to send data inputs and drill into final outputs over the Web.

II. FINrisk® FX collateral model

The application performs Monte Carlo value-at-risk simulation for a portfolio of customer outright foreign exchange forwards, stop-loss orders and European foreign exchange options together with portfolio and collateral revaluation. The industry standard simulation is enhanced by Cholesky's correlation matrix factorization algorithm, which enables near-real-time marginal value-at-risk calculation of a hypothetical trade. Further enhancements include derivation of maximum number of required scenarios to achieve the value-at-risk precision at a given level of confidence for a particular client, parallel processing among clients, and more (detail specification available upon request).

The result is an assessment of collateral against the mark-to-market value of client's portfolio plus the risk add-on value derived by the simulation. It is possible to integrate the application with any web based trading technology.

[ FINrisk® FX collateral model demo ] [ Product brochure ]

III. FINrisk® variance-covariance matrix calculation based on RiskMetrics® methodology

The application retrieves historical quotes time-series from MoneyLine Telerate® and uses the EWMA algorithm to estimate time dependent variance and covariance. The algorithm is based on RiskMetrics®, 4th ed., 1996.

The result is daily updated variance-covariance matrix for FX and IR quotes and time dependent volatility and correlation forecasts. Furthermore, the matrix is quickly transformed by Cholesky's factorization into the lower triangular matrix.

IV. FINrisk® option valuation by numerical methods

The application uses Monte Carlo simulation to generate sample paths, final option values and discounts them into the present. This method is useful for European and path-dependent options, such as Asian or barrier options. Binominal trees, an extension of the simulation, are used to value American options.

The result is the risk-neutral value of options. Further enhancements include derivation of maximum number of required simulations to achieve the desired option value precision at a given level of confidence.

Contact: info at finrisk dot sk