Executive Summary
This paper is speaking to the Middle Office function, controlling Market Risk in an Investment Bank, particularly of the first tier. Analogously then It speaks to the similar function in Asset Management or Life Assurance, it is concerned with issues of compliance and transparency in particular Basel III, IFRS7 and Solvency 2. Inside the Volatility Zone is the conclusion of the concept development work of John A Morrison of Asymptotix and David R Bristow of Siag Risk Management which has been on-going through the period of ‘La Crise’. The aim of the paper is to position Siag Risk management technology solutions and Asymptotix deep domain expertise in the context of the macro business requirement of development of solutions to demands for banking transparency and the micro touch-point of Market Risk quantification where Siag toolsets can instantly solve the challenges of the black hole of the Volatility Zone described in the paper.
Financial institutions are facing a new paradigm in terms of effective market risk management, compliant capital management and full regulatory compliance with the keystones of Basel III, IFRS and a range of new compliance norms from international regulatory authorities. In the context of what has been an unprecedented period of market volatility since 2008, institutional re-capitalisation, liquidity shortfalls, state interventions and punitive response proposals for increased taxation, Glass Steagall type separations and high capital reserve ratios to finance vast regional rescue fund safety nets; it is time to ask the question whether this approach to a solution is optimal for the forward prosperity and health of the Tier 1 investment banking & asset management sector.
In a market risk legacy technology environment which has systematically failed to deliver information visibility levels capable of keeping pace with the new velocity, volume, volatility and complexity of international capital markets; this paper addresses viable alternate solutions available within reach of the latest generation of ultra fast tactical advanced risk modelling and reporting technologies and presents a coherent alternative eliminating or significantly reducing the need for the drastic measures currently under discussion.
Siag as risk management consultants to leading Tier 1 asset management organisations believe strongly in a full and exhaustive modelling of VaR variants, Value at Earnings (VaE) and P&L vectors, with extensive what if scenarios, stress testing and back testing to full portfolio risk adjusted valuation with the highest degree of confidence over a given temporal horizon which it is currently possible to achieve. It is only possible to achieve this degree of accuracy and confidence by considering a full range of risk models taken in conjunction, as any one risk measure in itself cannot be considered to be a reliable indicator of risk exposure. New forms of VaR such as the stressed VaR required under Basel demand that any Tier 1 market risk management system must have the ability to incorporate new measures and metrics as may be required operationally or demanded by regulators for effective risk analysis.
Siag operates through its partnership network in Europe, Asia and the USA. The Siag leadership team is aware that however advanced the Siag Risk Engine and Data Management environment, what really makes the difference to you our client is its people. Siag’s partners are an extension of that. Only the most advanced technology delivered by the most experienced competent people can make the difference to your requirements in the ‘Volatility Zone’ and it is here that Asymptotix stand alongside Siag – able to help. Asymptotix has deep domain expertise in this space and has assisted Siag in the shaping of the Solution Design of the product set described here. This partnership is available to assist you in the challenges addressed in the paper.
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