Feb 5, 2013

The Intersection of Big Data and Risk Management

Risk management is dependent on data. But post crisis, modern risk management in banking poses unique Big Data challenges – from fragmented infrastructure to increased regulation, product complexity and market volatility. As the regulatory and market environment demands increasingly complex calculations and the volume of data being collected grows, so too do rising expectations of accuracy and frequency of calculations for analysis and reporting.   

As banks move from Value at Risk (VaR) to Potential Future Exposure (PFE) and Credit Value Adjustment (CVA) methodologies, the number and scale of calculations for a reasonably sized  portfolio have risen considerably. PRMIA Presentation Example VaR vs PFE # of CalculationsThe example below shows the  number of calculations on a small portfolio increasing 800 fold when moving from VaR calculations to PFE calculations. For banks aiming to calculate CVA on a weekly or daily basis, the sheer number of calculations requires considerable compute power and the generation of these data points in minutes verses hours or days.

That’s before the weighty task of analyzing the gigabytes of big data created. Just retrieving this data from traditional databases can take dozens of minutes. And quick analysis of CVA results is critical as banks consider incremental CVA of a potential trades with their counterparties.

Denny Yu, Numerix In mid-January Numerix was delighted to join our partners at Xenomorph and Microsoft to participate in the PRMIA New York Chapter Seminar, “Big Data – What Is Its Value to Risk Management?”. The event brought leaders from across risk, regulation, technology and academia together to delve into the impact of “Big Data” on the financial industry and risk management. Numerix risk expert and a leader in our Client Solutions Group, Denny Yu, joined Microsoft’s Colleen Healy, to discuss this very challenge in their session titled Big Data Strategies for Risk Management.

 Get a detailed account of the Numerix and Microsoft presentation, as well as a full account of the PRMIA New York Chapter event, on the Xenomorph blog: Big Data – What is its value to Risk Management?. And access the slides on PRMIA’s website here. 

 Weigh in and continue the Big Data in Risk Management conversation on Twitter @nxanalytics #FinDataRisk, our LinkedIn CVA Forum Group, or in the comments section below. If you have any further questions or require additional information contact us marketing@numerix.com.

Blog Post - Nov 07, 2011

Modeling Wrong Way Risk in CVA for Traders and Risk Managers

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