FINANCIAL SERVICES • SOLUTION BRIEF
Companies that utilize technology to integrate multiple data sources and create a comprehensive set of metrics to track risks and adjust strategies are better placed to adapt to changing market and economic conditions quickly.
Adam Sussman and Cheyenne Morgan
TABB Group, Risk Measurement on Demand:
Complexity, Volatility and Regulatory Uncertainty ,
June 2012
• System limitations. Many financial institutions simply lack the technological capabilities to value firmwide portfolios on a near-real-time basis, making them unable to gauge the impact of portfolio changes on P&L and the balance sheet until the next business day.
• Inconsistent valuation methodologies.
Many institutions do not have a firmwide valuation policy or committee that governs the valuation process, which leads to inconsistency and inaccuracy in valuations across the firm.
• Too many valuation models. Different departments – and sometimes different trading desk – can have their own valuation models, and this may lead to different valuation models being used to value the same instrument.
• Lack of timely and independent validation. Financial institutions often do not have a group that independently validates the output of valuation models on a sufficiently frequent basis.
Global economic uncertainties, combined with unprecedented regulatory scrutiny, have substantially changed the operating environment for global capital markets firms. In addition, the total transformation of the OTC derivatives market driven by Dodd-Frank and significantly higher capital ratios driven by Basel III have changed many trading processes, the products themselves and how risks must be evaluated and properly quantified.
Speed and accuracy have become critical aspects of market and credit risk management in this new operating environment. The speed at which a firm can quantify the risks associated with instruments and portfolios of all types, especially complex products, can have a significant impact on the firm’s ability to expediently manage limits and concentration at the desk level – as well as capital requirements that affect the firm as a whole. The accuracy of instrument pricing and valuations can materially affect outcomes and profitability, particularly in an environment of narrow spreads and higher compliance-driven operational costs.
Unfortunately, many institutions still struggle with the basic valuation process, despite it being a critical component of effective risk management. As a result, both sell- and buy-side institutions are looking for ways to enhance their valuation processes with both business policy and technology improvements.
Many issues related to portfolio valuation came to light during the recent financial crisis. In response, regulators and business consultants now recommend that financial institutions have sound governance practices around the valuation process and that they modernize their valuation technology to enable transparency and intraday revaluations. SAS approaches the problem by providing capabilities to help you:
• Ensure that your risk exposures and concentrations stay within established limits by using high-performance analytics to perform near-real time or intraday valuations.
• Analyze any instrument or asset class – no matter how complex – and manage associated positions with a risk technology platform that centralizes the storage, management and validation of all portfolio valuation models used across the firm, including prepackaged and third-party pricing functions, and those created in-house.
• Aggregate valuations with greater accuracy based on every security held in the portfolio at current market conditions using advanced data management and event stream processing capabilities that can accommodate the large, continuous streams of market data that feed into sizable portfolio valuations.
• Price your portfolio holdings with greater speed and precision with an open pricing model approach that includes a standard library with a wide range of instrument types, along with the ability to integrate third-party (e.g., FINCAD) and in-house pricing libraries to ensure full instrument coverage and standardized valuations.
SAS gives you more accurate results – in minutes, not hours – for identifying new opportunities and making critical, pressing decisions.

®
SAS provides maximum value in “must act now” situations in response to, or in anticipation of, changing market conditions. With SAS you get:
• A powerful high-performance risk engine. SAS delivers a risk engine capable of running calculations and storing multidimensional cubes over an in-memory grid, which enables fast portfolio revaluations for use in trading or hedging decisions.
• A flexible, open risk platform. Unlike black-box solutions, all underlying SAS code and data elements are open to users for easy customization and expansion, enabling your firm to readily accommodate new financial instruments and valuation methods.
• Faster results. Pricing functions are directly enabled on the grid and results are held resident in memory and are available for analysis immediately, which exponentially speeds the calculation time for pricing functions and enables faster decision making.
SAS helps you make faster decisions that protect your firm’s viability by enabling you to perform on-demand valuations and understand the impact of market changes on your firm’s portfolio.
The bank’s existing system required overnight batch runs to compute market risk measures and value the portfolio – which included approximately 85,000 derivatives positions and 10 million loans, equities and fixed-income instruments. As a large player in the Asian derivatives market, the bank was concerned that its inability to monitor exposures and limits on an intraday basis could adversely affect the institution. The bank needed a risk platform that could value its derivative trades and revalue its portfolio in near-real time. The bank further required that the new system be able to revalue the entire portfolio in a few hours and value the derivatives subportfolio in a matter of minutes.
SAS performed several tests on the bank’s portfolio by:
• Loading portfolio and risk factor data.
• Revaluing all instruments in the portfolio.
• Using Monte Carlo simulation to produce portfolio-level measures for market risk.
SAS reduced the time needed to value the portfolio and create risk measures from
18 hours to 12 minutes. The bank now uses SAS to produce intraday risk measures on its entire portfolio and to value derivatives transactions on a pre-trade basis.
What if you could value positions involving even the most sophisticated financial instruments using custom pricing algorithms?
What if you could speed ETL and perform continuous event processing to examine every individual position based on up-to-the-minute market conditions?
What if you could more rapidly and accurately price your portfolio holdings, no matter how large and complex they became?
®
• SAS has more than 36 years of experience working with financial institutions all over the world.
• SAS solutions are used by more than
3,300 financial institutions worldwide, including 97 percent of banks in the
Fortune Global 500 ® .
• SAS is a category leader in Chartis
Research’s inaugural “Basel 3
Technology Solutions 2012” report.
SAS Institute Inc. World Headquarters +1 919 677 8000
To contact your local SAS office, please visit: sas.com/offices
SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. ® indicates USA registration. Other brand and product names are trademarks of their respective companies.
Copyright © 2012, SAS Institute Inc. All rights reserved. 105999_S93677.1012