Misys Summit has a strong suite of market risk tools, covering all asset classes in a consistent fashion. The filters in Misys Summit allow analyses to be run at any level, from portfolio-wide to drilling down into specific areas of the portfolio, all the way down to individual trades.
Misys Summit's risk analyses cover the full range of market risk tools, from desk-level risk tools, such as the greeks (delta, gamma, vega, theta) and hedge analysis, through to what-if scenarios and Value at Risk (VaR).
VaR
Value at Risk is an essential measure of risk, not just in the middle office, but in the trading area as well. Misys Summit has a range of VaR reports, to cover all the main flavours of VaR analyses. These can be run on-demand during the day, on anything from individual trades up to whole cross-asset portfolios. They can also, of course, be scheduled as part of an end-of-day run, for example.
Value at Risk analyses supported by Misys Summit include:
- Delta / Gamma VaR – a variance-covariance approach to VaR, taking full account of optionality in trades
- Monte Carlo VaR – Misys Summit's Monte Carlo VaR uses mathematical techniques such as stratified sampling and Principal Component Analysis (PCA) as well as using the Delta / Gamma VaR analysis to improve performance without compromising accuracy
- Historical VaR – this allows the portfolio to be taken through a given historical period to see the VaR effects of actual historical movements. User definable methodologies include: right percentile of the empirical distribution and fitted normal distribution
- VaR validation – a critical factor of Value at Risk analysis should be the backtesting of the VaR models against actual P&L shifts. Misys Summit includes several features for backtesting model effectiveness: loss/gain report, distribution gap histogram and investigation tools.
Dealer Level Risk
Misys Summit has the full range of dealer risk measurement tools, available from pricing screens, real-time risk monitors and on-line reports. All of the risk analyses are consistent across products, allowing truly integrated risk reports on mixed portfolios.
Standard tools include:
- hedge analyses - FX, Stock equivalents, IR exposure as BPV, or bond/futures/swap equivalent, credit exposure as CDS equivalents, volatility and correlation exposures (FX, Equity, IR, Credit)
- the greeks - delta, gamma, vega, theta
In addition to the generic risk numbers and reports, there are custom risk analyses to meet the needs of traders in individual product areas. These include:
- Foreign exchange risk – deltas, spot risk, forward ladders, rho, phi etc.
- FX options – deltas, thetas, vegas, forward ladders, rho, phi etc
- Bonds – convexity and duration reports
- Credit derivatives – recovery rate risk and default risk
Scenario analysis
Misys Summit's basic approach is that if an item of market data is used to price an instrument, it can be stressed to provide sensitivities. The range of market data that can be stressed within the system is vast. Also, when performing scenario analyses, or stress tests, a wide variety of shifts can be performed.
One of the key strengths of Misys Summit's scenario analysis, as with all of its risk management, is that all the reports mentioned are capable of processing all asset classes together and providing consolidated risk reports.
What-if analysis
As well as the ability to stress the market data, to see the effects of changes in the prevailing financial conditions, Misys Summit allows users to add "what-if" trades to the portfolio alongside the actual portfolio.
These "what-if" trades need not even be stored to the database, as they can be created dynamically within the dealer's blotters. If however, a theoretical portfolio needs to be captured, this can easily be done without affecting the real portfolios, or causing problems downstream.
Real-time Risk Analyses
There are times when knowing your risk can make the difference between intelligent trading and guesswork. But there is a fundamental problem, that the more trades you have, the greater the complexity of the trades, and the more sophisticated the risk you want, the longer it will take to produce the risk numbers. This is why Misys Summit has a range of real-time risk analyses – to give you the information you need, when you want it.
The details of the risk analyses Misys Summit can provide are detailed in the Dealer Level Risk and Scenario Analyses sections. With the real-time delivery, users benefit from:
- risk information that is always up to date in terms of trades
- risk information based on recent market data
- high-level risk summaries, with configurable displays
- graphing of risk numbers to help identify areas of greatest sensitivity
- drill down from positions into subsets of data (currency, trade type, book, etc.)
- drill down all the way to individual trades
