Jun 5, 2013

Strategic Risk Analytics and the Technology Demands of Calculating Counterparty Risk

Research Uncovers Essential Elements for Long-term Strategic Risk Analytics & Adoption of CVA

A new research paper authored by Dushyant Shahrawat, Senior Research Director of Capital Markets at CEB TowerGroup titled, Spotlight on CVA - Trends, Perspectives and IT Implications provides a unique perspective of Credit Value Adjustment (CVA) and how this Counterparty risk calculation is being managed by Capital markets firms – starting from simple measurement and reporting of CVA, to effectively hedging CVA firm wide, and finally to CVA as a profit center.

Download the CEB TowerGroup Special Report»

As one of the most complex and computationally demanding activities in Capital markets, this paper stresses the importance of a well-thought out CVA strategy, one which requires the requisite investment of data, analytics and infrastructure to achieve speed, accuracy and scalability.

Employing Cloud Technology For Risk Analytics and CVA

While substantial progress has been made in applications and the infrastructure approaches deployed in doing CVA, data continues to be a challenge. As depicted below, CVA requires enormous amounts of data to be collected from across the trade lifecycle which must be integrated with external sources in order to produce outputs.

CVA outputs

Source: Counterparty Credit Risk and CVA, 2012

As demands to increase the frequency of doing CVA in real-time, of all the use cases for Cloud technology few are as powerful as employing it for risk analytics. As represented below, CEB TowerGroup estimates that large capital markets firms could realize 5-7% in overall IT cost savings by 2015 using Cloud technology – an impressive figure.

Estimated Percentage Savings For Large Securities Firms From Cloud Implementations by 2015

Source: CEB TowerGroup

In summary Mr. Shahrawat concludes:

    “Firms must adopt a long-term strategic posture towards risk analytics, and invest in vendor     applications that are built from the ground-up to handle risk processes like CVA. Furthermore,     recent advances made in commoditized hardware and Cloud technology offer capital markets firms     the unique opportunity to reduce costs, scale risk functions, and conduct complex calculations that     were until now only something that large firms could do. Over the next 2-4 years, such approaches     could well broaden the risk analytics market and herald a golden age for risk management     technology.”

Download the Full Paper» Spotlight on CVA - Trends, Perspectives and IT Implications

Weigh-in and continue the conversation on Twitter @nxanalytics, 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 - Oct 20, 2011

Modeling Wrong Way Risk in CVA for Quantitative Analysts

Need Assistance?

Want More From Numerix? Subscribe to our mailing list to stay current on what we're doing and thinking

Want More from Numerix?

Subscribe to our mailing list to stay current on what we're doing and thinking at Numerix

Subscribe Today!