• What kind of risks does ActiveMargin™ help monitor? |
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ActiveMargin™ helps monitor and control the following risk types
- Market Risk
- Credit Risk
- Liquidity Risk
- Pre-Settlement Risk
- Post-Settlement Risk
As of this version, the emphasis is on Market Risk. Future releases of ActiveMargin™ will find more and more features in the other risk types.
ActiveMargin™ helps control and monitor market risk through repricing of various instruments in a portfolio under stochastic conditions, subject to correlations in returns amongst them and by marking to market portfolios when prices change.
ActiveMargin™ helps controlling counterparty credit risk by permitting definition of counterparty limits. These limits are set across the entire enterprise, in any currency, and ActiveMargin™ would raise alerts or reject deal requests when such limits are crossed.Credit risk is incorporated using different discounting curves for different credit qualitites.
ActiveMargin™ incorporates liquidity risk through definition of look-ahead period. Typically, this is the period within which a position can be wound down in an orderly manner. By increasing the look-ahead days for illiquid positions, ActiveMargin™ increases margin requirements on such positions.  |
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| • Can ActiveMargin™ alert the risk manager of a possible limit violation, real-time, even before such violation occurs? |
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Yes. ActiveMargin™ has an elaborate alert system, that can raise alerts before the defined limits are reached. The alerts are broadcast over the TCP/IP channel, and also displayed in the ActiveMargin™ Risk Manager console.
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| • How does ActiveMargin™ help in capital allocation for market risk? |
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The enterprise-wide VaR figure reported by ActiveMargin™ is a good starting point for capital allocation. Typically a bank might want to peg the capital allocation to a multiple of this figure.
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| • What kind of risk reports can I generate from ActiveMargin™? |
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Users can generate a variety of risk reports from ActiveMargin™, online as well as end of day. ActiveMargin™ supports along the following risk dimensions
- Entity Type
- Counterparty
- Instrument Type
- Risk Type
- Currency
Users can generate reports on any two of the above dimensions. The reports can be generated online, and at various confidence intervals. The first screen shot shows a risk report by risk type for an enterprise.
The following screen shot depicts the value-at-risk for a division, reported by maturity bucket.
Click here to view screen shot
The following screen shots show VaR reports by risk type and currency
Click here to view screen shot
The following screen shots show VaR reports by risk type and currency
Click here to view screen shot
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| • How does ActiveMargin™ act as an online rules engine? |
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ActiveMargin™ provides a business rules specification, using which a risk manager can set the broad parameters within which individual traders and higher levels in the hierarchy can trade. These rules can be changed online, and such changes take immediate effect. While a very useful tool for day-to-day fine tuning of the trading activity, this also provides the ability to intervene rapidly when the market developments warrant it.
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