Risk management system and method for determining risk characteristics explaining heavy tails of risk factors
First Claim
1. A computer-implemented method for estimating risk characteristics of portfolios of financial instruments, the computer-implemented method comprising the steps of:
- maintaining a database of electronically stored information comprising a plurality of scenarios, sets of instruments, sets of risk factors, and portfolio weights for the instruments;
selecting a required number of scenarios, a set of instruments with corresponding amounts, a set of risk factors, and one or more sets of portfolio weights for each of the set of instruments from the database by a user through an input device for input into a memory;
maintaining a network operatively coupled and providing communication between the database, the input device, and a computer processor coupled to the memory;
processing the selected information by the computer processor coupled to the memory, comprising;
transforming historical observations for the set of risk factors to a stationary homogenous time-series comprising transformed historical observations;
obtaining stable Paretian parameters describing a heavy tailed and asymmetric distribution for the transformed historical observations in the set of risk factors by estimating stable Paretian parameters based on the transformed historical observations;
generating a set of stable Paretian scenarios from the heavy tailed and asymmetric distribution for the set of risk factors by simulating dependent stable Paretian random variables based on the estimated Paretian parameters, wherein the distribution is performed in accordance with the equation;
3 Assignments
0 Petitions
Accused Products
Abstract
A risk management system and method of determining risk characteristics of portfolios by generating risk factor scenarios based on stable Paretian distributions is provided. The system includes a database for storing any needed input, output, and intermediate results data. At least one module from each of the predefined types can be employed to produce a corresponding result—either intermediate or final. The risk management system and method provide possibilities to use flexible multivariate distribution exhibiting heavy-tails, skewness and different dependence structure, and characterizing the whole distribution of a given financial variable, allows users to perform flexible stress tests on all calculation levels, supplies fast analysis due to the possibility to use intermediate results in many subsequent calculations and to employ several calculation modules in parallel, allows for an efficient enterprise-wide risk management because of the possibility intermediate results to be used by many users.
37 Citations
28 Claims
-
1. A computer-implemented method for estimating risk characteristics of portfolios of financial instruments, the computer-implemented method comprising the steps of:
-
maintaining a database of electronically stored information comprising a plurality of scenarios, sets of instruments, sets of risk factors, and portfolio weights for the instruments; selecting a required number of scenarios, a set of instruments with corresponding amounts, a set of risk factors, and one or more sets of portfolio weights for each of the set of instruments from the database by a user through an input device for input into a memory; maintaining a network operatively coupled and providing communication between the database, the input device, and a computer processor coupled to the memory; processing the selected information by the computer processor coupled to the memory, comprising; transforming historical observations for the set of risk factors to a stationary homogenous time-series comprising transformed historical observations; obtaining stable Paretian parameters describing a heavy tailed and asymmetric distribution for the transformed historical observations in the set of risk factors by estimating stable Paretian parameters based on the transformed historical observations; generating a set of stable Paretian scenarios from the heavy tailed and asymmetric distribution for the set of risk factors by simulating dependent stable Paretian random variables based on the estimated Paretian parameters, wherein the distribution is performed in accordance with the equation; - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18)
-
-
19. A computer-implemented risk management system for estimating risk characteristics, comprising:
-
a database of electronically stored information comprising a plurality of scenarios, sets of instruments, sets of risk factors, and portfolio weights for the instruments; an input device to receive selections from a user of a required number of scenarios, a set of instruments with corresponding amounts, a set of risk factors, and one or more sets of portfolio weights for each of the set of instruments from the database by a user through an input device for input into a memory; a network operatively coupled and providing communication between the database, memory, the input device, and a computer processor coupled to the memory, wherein the processor is programmed to execute program modules, the program modules comprising; at least one Transformation Module from each type of Transformation Module out of a pre-defined non-empty set of Transformation Module types that transforms a set of risk factors'"'"' historical observations into a stationary homogenous time-series; a Stable Scenarios Module comprising; at least one Stable Parameters Estimation Module from each type out of a pre-defined non-empty set of Stable Parameters Estimation Module types, that estimates stable Paretian parameters describing a heavy tailed and asymmetric distribution over a set of time-series data; at least one Copula Parameters Estimation Module from each type out of a pre-defined non-empty set of Copula Parameters Estimation Module types, that estimates copula parameters for a given class of copula distributions over a set of time-series data; at least one Stable Simulations Module from each type out of a pre-defined non-empty set of Stable Simulations Module types, that generates stable Paretian random scenarios from the heavy tailed and asymmetric distribution, wherein the distribution is performed in accordance with the equation; - View Dependent Claims (20, 21, 22, 23, 24, 25, 26, 27, 28)
-
Specification