Risk management system, distributed framework and method
First Claim
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1. A method of determining at least one risk metric for a portfolio of instruments, comprising the steps of:
- (i) selecting a set of instruments, each instrument in said set having a model defined therefore, each model operating on at least one risk factor to produce a value for said instrument;
(ii) selecting a set of scenarios, each scenario comprising a risk factor value for each risk factor operated on by said models of said instruments at at least a first and second time interval and each scenario having a probability value assigned thereto, said probability value representing the likelihood of said scenario occurring;
(iii) applying said selected set of scenarios to said set of instruments to produce a risk value for each instrument in said set of instruments for each scenario in said set of scenarios for each time interval;
(iv) storing in a database each instrument risk value produced for each instrument in said set; and
(v) for a portfolio of instruments comprising at least a subset of said set of instruments, producing a desired risk metric from said associated probabilities and said determined risk values for each instrument of said portfolio by retrieving said stored risk values from said database.
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Abstract
A risk management system and method of determining a risk metric for a portfolio of instruments is provided. The system and method include a database wherein determined risk values for instruments in a set of instruments under each scenario can be maintained. At least one risk engine can be employed to determine values for the instruments and at least one aggregation engine can be employed to produce desired risk metrics for the set of instruments or a subset thereof. Each risk engine and each aggregation engine is connected to the database by an appropriate network.
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Citations
29 Claims
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1. A method of determining at least one risk metric for a portfolio of instruments, comprising the steps of:
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(i) selecting a set of instruments, each instrument in said set having a model defined therefore, each model operating on at least one risk factor to produce a value for said instrument;
(ii) selecting a set of scenarios, each scenario comprising a risk factor value for each risk factor operated on by said models of said instruments at at least a first and second time interval and each scenario having a probability value assigned thereto, said probability value representing the likelihood of said scenario occurring;
(iii) applying said selected set of scenarios to said set of instruments to produce a risk value for each instrument in said set of instruments for each scenario in said set of scenarios for each time interval;
(iv) storing in a database each instrument risk value produced for each instrument in said set; and
(v) for a portfolio of instruments comprising at least a subset of said set of instruments, producing a desired risk metric from said associated probabilities and said determined risk values for each instrument of said portfolio by retrieving said stored risk values from said database. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19)
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20. A risk management system operable on set of instruments and a set of scenarios, each scenario including risk factor values and a scenario probability, said system comprising:
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at least one risk engine operable to determine a risk value for each instrument in said set of instruments, said risk value determined by evaluating, in view of said risk factors in said scenario, a model stored for said instrument;
a database to store each said determined risk value; and
an aggregating engine to retrieve said determined risk values and said scenario probabilities for a portfolio comprising at least a subset of said set of instruments to produce a risk metric. - View Dependent Claims (21, 22, 23)
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24. A method of determining the marginal risk in at least one risk metric for a portfolio, comprising a set of instruments, which would result from a proposed transaction to alter said portfolio, each instrument in said portfolio and each instrument in said proposed transaction having a model defined therefore, each model operating on at least one risk factor to produce a value for said instrument, the method comprising the steps of:
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(i) selecting a set of scenarios, each scenario comprising a risk factor value for each risk factor operated on by said models of said instruments at at least a first and second time interval and each scenario having a probability value assigned thereto, said probability value representing the likelihood of said scenario occurring;
(ii) applying said selected set of scenarios to said portfolio to produce a first risk value for each instrument in said portfolio for each scenario in said set of scenarios for each time interval;
(iii) storing in a database each first risk value produced for each instrument in said portfolio;
(iv) producing a first measure of said at least one risk metric from said associated probabilities and said determined first risk values for each instrument of said portfolio by retrieving said stored first risk values from said database;
(v) for each instrument in said set of instruments affected by said proposed transaction, altering each said affected instrument in accordance with said propose transaction and applying said selected set of scenarios to each altered instrument to produce a second risk value for each altered instrument for each scenario in said set of scenarios for each time interval; and
(vi) producing a second measure of said at least one risk metric by combining associated probabilities and said second risk values for said altered instruments with said first stored risk values for unaltered instruments in said set of instruments retrieved from said database to produce a second measure of said at least one risk metric. - View Dependent Claims (25, 26, 27, 28)
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29. A method of determining counter party credit exposure risk for a portfolio comprising a set of instruments, comprising the steps of:
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(i) selecting a set of scenarios, each scenario comprising a risk factor value for each risk factor operated on by said models of said instruments at at least a first and second time interval and each scenario having a probability value assigned thereto, said probability value representing the likelihood of said scenario occurring;
(ii) applying said selected set of scenarios to said portfolio to produce a value for each instrument in said portfolio for each scenario in said set of scenarios for each time interval;
(iii) storing in a database each value produced for each instrument in said portfolio; and
(iv) determining a subset of said set of instruments for which a first party of interest is the counter party and determining the credit exposure for said first party of interest by retrieving said stored values and said associated probabilities from said database.
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Specification