We have teamed with FERNBACH Software (www.fernbach.com) to provide an integrated solution for quantitative modelling and capital calculation within Optial using their FlexFinance® Analytix tool. Analytix provides a powerful and flexible framework for risk modelling which banks can use to devise their own specific risk models. The framework enables banks to model changing economic and regulatory landscapes quickly and economically.
The FlexFinance Analytix library includes models for a diverse range of issues, such as:
- Aggregation of economic capital A simple addition of silo risks (e.g. credit risk, market risk, operational risk etc.) leads to over-estimating the total risk. The aggregation of economic capital model avoids this by enabling financial institutions to take inter-risk correlations into account while aggregating risks, so that a bank can take the true cost of risk into account in its decision making including product and counterparty pricing.
- Historical value at risk model Historical VaR models are known to be the best at capturing risks from unlikely events or during times of economic uncertainty. This model calculates value at risk by comparing the actual volatility of components or risk elements within a portfolio to the historical sensitivity of those components.
- Monte Carlo simulation This model calculates the value that is at risk of being lost from a change in interest rates using Monte Carlo simulations. The model enables a financial institution to calculate the sensitivity of a single instrument or an entire portfolio to any number of interest rate changes.
- Stress Testing As recent events have shown, models by themselves are inadequate in understanding the effect of changing economic conditions on a bank’s portfolio. It is important to stress for alternative economic scenarios to complement existing models and management systems.
Optial supports the use of internal Optial data along with external data to drive the Analytix modelling activity and retrieve the results back into the OBI Cube for reporting and analysis.
Additionally, Optial provides scenario analysis templates so that both qualitative and quantitative data, such as scenario descriptions, loss amounts and frequency/likelihoods can be recorded.
Quantitative scenario analysis data will be available for use in modelling and the subsequent modelling results attached to the scenario template for completeness.
In combination with the FERNBACH Analytix engine, Optial can:
- Support use of internal loss data and risk scenarios for the purposes of calculating the capital charge for operational risk according to the Advanced Measurement Approach
- Support the three basic approaches within AMA - Internal Models Approach, Loss Distribution Approach and Scorecard Approach
- Draw upon a comprehensive library of mathematical functions and distributions for modeling
- Flexibly supports any internal capital allocation model or apply a model as required.
If you would like further information on Optial Products or services email: email@example.com or telephone: +44 (0) 207 247 7673.