Risk Management

All firms with financial positions, whether for investment or hedging purposes are now required to fully disclose the potential implications and the risk factors inherent with their trades or hedges. Such disclosure requires not only fair value analysis but also Value-at-Risk (VaR) and Scenario Analysis. The Perfect Hedge provides all of this together with custom analytical risk reports.

Value-at-Risk (VaR) Analysis

VaR provides an estimate of how much value can be lost, by a portfolio over a time horizon, subject to a specific confidence interval. VaR has become a preferred risk measure for investors, management and securities regulators.

VaR Using the Variance-Covariance Method: The Perfect Hedge calculates VaR, diversified VaR, and undiversified VaR for portfolio positions. VaR and component VaR are calculated by currency or asset class and for individual risk points. All VaR calculations may be performed on a current or historical basis.
VaR Using the Historical Scenario Method: The Perfect Hedge calculates Historical Value at Risk using the historical scenario method to provide an estimate of how much money can be lost by a portfolio over a time horizon, subject to a confidence interval. Historical VaR uses actual historical price, volatility and yield changes, all automatically managed by the Market Data Application to generate scenarios and calculate a distribution of position (trade) and portfolio market value changes.

Scenario Analysis

All financial and treasury managers have their own view of what "could happen". History can provide one way of constructing "what if" scenarios. The Perfect Hedge calculates Shock Scenario Risk Analysis by supporting:

The specification of interest rate, FX, or commodity price shocks, or historical price (or rate) changes with respect to corresponding current and historical market data sets.
The automatic generation of shock scenario datasets.
The current date or historical valuation of a single position, a set of positions, hedges (a set of related positions), and sets of portfolios using scenario valuation assumption data.
The summary analytical reporting of valuation results produces two types of reports:
1. Portfolio Scenario Report that calculates the value and changes in value of a portfolio given the scenario on a current date or historical basis and broken out by currency and asset.
2. Trade Scenario Report that calculates the value and changes in value of a trade under a chosen scenario, also performed on a current date or historical date basis.

Custom Reports

Custom reports can be produced for various position datasets (i.e. by user, group, organization, counterparty, exchange, instrument type, currency, GL account, issuer, etc.). Reports may be calculated on a current or historical date thus enabling the production of risk disclosure information for past financial reporting dates as well as for future financial reporting dates. Calculations can be performed unattended by setting up calculation job schedules.