RiskMonitor®
A Scalable Risk Management Application

RiskMonitor® is a advanced Risk Management solution that can scale by 1) instrument coverage, 2) functional coverage and 3) business volume. It is designed to provide only what our clients need, when they need it; from a single business unit to the entire enterprise.

RiskMonitor® empowers portfolio managers, traders and senior management to proactively manage risks and optimize performance on an enterprise to position level. The key difference in Axiom technology and others is the fact that the application has been designed to operate on our client’s own data structure. Axiom does not impose a new and foreign data model on our clients in order to make the application work properly. This architectural distinction means extraordinary savings in the cost of set up, deployment, operations and audit.

RiskMonitor’s Functional modules include:

• Instrument Management
• Market and Credit Risks
• Operational Risk
• Basel II Advanced Models
• ALM and Liquidity Risks
• Energy/Commodity Risk
• Capital and Earnings at Risk
• Comparative Benchmark Risk and Performance Management
• Hedge Effectiveness and Accounting
• Limits Administration and Monitoring
• Yield/Forward Curve and Volatility surface bootstrapping

RiskMonitor’s component based architecture is deployed with just the function sets required to satisfy our client’s current needs, with the capability to expand functions when it makes sense. RiskMonitor’s power and flexibility are achieved through our robust risk engine and Axiom’s strong data management infrastructure, which includes our IntegrationCenter™, Dynamic Data Warehouse™, FinETL, Workflow and Report Writers. Using XML based Visual Business Rules™ (VBR) for portfolio construction; this platform provides users with unrivaled control over transaction/trade source data integration, aggregation, access to dynamic historical storage of market and credit reference and resulting data.

• Full support for Basel II Credit Risk Capital and Trading Activities Compliance
• Risk methods: Variance/Covariance, Monte Carlo and Historical Simulation, Principal Components, etc.
• Risk Versions – Allows multiple users to have different sets of measurement parameters to satisfy business and regulatory requirements;
• Flexible risk horizons (long and short) ;
• Full instrument coverage (financial, energy, commodities) using Axiom, Third party or internal analytical models;
• Financial and commodity curve generation, calibration, storage and services;
• Cash flow generation, storage and analysis
• User defined Stress Tests and Scenario (deal and market) analysis;
• Flexible Time Series Statistical Engine integrating multiple sources of market data;
• Unlimited risk factor volatility and correlation matrices are calculated and historically stored;
• Market Data Validation — Identification of missing data, Out of range values, Incomplete Time Series;
• Multiple Risk Aggregation hierarchies
• Market and Credit Risk Limit Administration and Monitoring
• Multidimensional analysis capability via desegregation of a whole portfolio risks and exposures into those of its components to the lowest level of granularity.
• Risk measures include: VaR, CfaR, EaR, CapR, RAROC, Credit-Exposure plus estimated Expected, Unexpected, Worst Case (capital ) Credit loss;
• Back Testing for validation
• Trend Analysis — Risk measures, Limits Control, Mark-to-Market, Distribution over Time.
• Liquidity coefficients
• Report and store intermediate Risk Calculations — Stand-alone VAR, VAR ranges analysis, Correlation and Covariance Matrices comparison, Portfolio/Benchmark and time Variance analysis

Benefits:

• Low Cost of Transparency by running on native data model
• Unobtrusive touch on source data
• Controlled Standards for Risk Measurement framework across the enterprise
• Common Data Management Platform offers extraordinary cost efficiency value
• Scalable to provide just the functionality needed.
• Flexible and Scalable to quickly and easily change as internal or external circumstances dictate.
• Extraordinary Total Life Cost of Ownership Competitive Value.
• WEB Services enabling technology

Risk Management Process Chart:

MARKET RISK
For Market Risk, RiskMonitor® offers several methodologies of calculations, including Variance/Covariance, Monte Carlo Simulation, Multi-factor Analysis and Historic Simulation, and provides a ready solution for generating a consistent measure of risk across all markets, product lines, and instruments. It satisfies all functional requirements to comply with Basel II Regulatory Capital calculations for Capital Markets activities. Short and long term horizons produce both Value and Earnings at Risk. Portfolio/Benchmark measures ex-ante and ex-post comparisons, including Error Tracking.

CREDIT RISK
RiskMonitor® provides consistent quantification of current and potential future exposures, based on user-defined parameters and flexible multiple term structures, which may be specified for all instruments within a portfolio.

RiskMonitor® handles risk and exposure aggregations, based upon various forms of netting agreements, and incorporates recovery from collateral and guarantees. Internal user-defined or rating agency generated tables of default and recovery information may be applied to perform user defined Credit Loss distribution analyses and Economic Capital measures. RiskMonitor’s Credit risk module provides solution for Counterparty Risk, Country Risk, Concentration Risk and complies with the functional requirements to comply with Basel II Credit Risk Regulatory Capital requirements using the Standardized and Internal Ratings Based approaches.

LIQUIDITY RISK
RiskMonitor® supports normal cash management, margin call management and position liquidation risk measures.

OPERATIONAL RISK
RiskMonitor® enables operational risk management and the measures needed to control losses due to internal processes and external events. This module includes BASEL II provisions for operational data collection, quantification and monitoring of Operational Risk and employs the Advanced Measurement technique with Loss Distribution Approach (LDA) to calculate Operational VaR (OR-VaR). The LDA method is based on actual loss data and can incorporate external experiences. OR-VaR is calculated for Each Business line/Operational Loss type combination and any other required drill down level of granularity.

Some of operational Loss types addressed by Risk Monitor® include:

• Transaction Processing: Trade Capture, Confirmation, Settlements
• Legal Liability: Judgments, settlements, legal costs;
• Regulatory, Compliance and Tax: Fines, penalties, interest charges;
• Reduction in value of non-financial assets due to losses or damages;
• Restitution: Payments to third parties;
• Loss of Recourse: inability to enforce a claim;
• Write-Downs: Reduction in value of financial assets (results of model or data error);
• Recovery; Some data collection functionality handled by IntegrationCenter™ include:
• Historical loss data
• Multiple risk causes for loss incidents
• Collect Impact for loss incidents
• Collect ‘near miss’ information
• Potential Impacts of causes
• Collect and group actions / controls for prevention
• Collect weaknesses data
• Collect operational key risk indicators (KRI)

RISK LIMIT CONTROL
The Risk Limit Control subsystem allows users to administer limits on virtually any aggregated measure (risk exposures, positions, market values, etc.). Limits can be set up to monitor risks by trader, country, counter party, business line, product, or other user-defined criteria.

It also can be set to provide early warning alert to users when below limit thresholds are reached. The capacity to drill down through multiple levels of limits is imbedded within the Risk Limit Control subsystem and allows users to thoroughly examine your data down to transaction or position level, and to quickly pinpoint the source of an anomaly. A pre-deal limit check module can show real time how a new transaction will affect a limit.

REPORTING
Management and Regulatory reporting is a core part of RiskMonitor. The on-line reporting facility generates complete reports (standard or customized) in on-screen and hard-copy formats. These reports can also be distributed by e-mail or exported to spreadsheets and other internal systems. Enterprise level reporting is handled using Integration Center’s scheduler or on demand. Web reporting can be set up for browser based users.

INSTRUMENT AND PRODUCT COVERAGE
RiskMonitor has been designed to provide a full range of Asset Classes, Instruments and Markets Among instruments covered by RiskMonitor® are:

Stand-alone risk components include:

• Statistical Engine – calculates statistical data (Volatility's, Correlations, Beta’s, etc.) on risk factors based on users requirements.
• Market Risk Engine – supports multiple risk methodologies and applies user-defined risk calculation methods: Variance/Covariance, Monte Carlo Simulation and Historic Simulation
• Credit Risk Engine – uses Monte Carlo simulation or add-on factors methodology to calculate credit risk measures including: average and maximum potential exposures of the portfolio as well as Credit Var. Credit Risk provides for the flexible netting agreements and collateral.
• Pricing Engine – uses various pricing models to measure current and estimated future market values and other Sensitivities on deal and portfolio levels. Users may select and apply models in any combination of Axiom, Third party of client proprietary pricing models and term structures appropriate for each instrument type.
• Risk Version Definition – this facility provides end-users with capability to define multiple sets of risk calculation parameters, allowing standardizing risk assumptions based on specific business requirements. By virtue of the storage of these parameters, this also provides the necessary controls over risk model performance and validity;
• Stress Test Scenario – accommodates and produces user-defined stress testing functions on multiple selections of risk factors;
• Portfolio Selection – selects the Data Set, to which risk scenario would be applied;
• Risk Aggregation – accommodates risk aggregation by user-defined hierarchies. Aggregates P&L, Market Risk (VAR), Credit Risk with default risk and netting capability, Consolidated Risk, Risk Limits;
• Pricing Model Selector – allows users to create sets of models to apply pricing methodologies (including proprietary);
• Curves Generator – provides calculation and generation of curves based on user-defined parameters and interpolation/extrapolation of missing data. The module is capable of interfacing with various market data sources producing accurate statistics on exceptions and warnings;
• Back Testing Module – performs next day values to complete back test calculations for risk model validation;
• External Source Integrator – integrates and applies correlations and standard deviations, volatility's and etc. from the external sources;
• Equity Analyzer – accommodates automatic selection of sets of the most representative indexes and calculate related equity betas together with original and residual volatility's;
• Convertible Bond Analyzer – accommodates both manual and automatic input of the complete set of bond parameters including put/call schedule. It is capable of handling existing transactions and as-if analyses including MTM and extensive Market/Credit Risk estimation;
• Sensitivities (Greeks valuation) –selection of BPVs and other Greeks to be included for calculation;
• Factor Master – manages risk factors. Registers statistical methods of handling risk factors such as distribution type and specific treatments of factor values;
• Limit Management – RiskMonitor limit management application supports credit and market risks. User can setup hierarchies of limits based on specific client requirements. Pre-deal limit compliance is supported.
• Time Series Viewer – facility that accommodates time series maintenance and their manual adjustments

Data Management
IntegrationCenter ™ and Dynamic Data Warehouse™ comprise a complete integration and data-warehousing platform for risk data, market data, front/middle/back office data, reference data and operational loss data. Provides dynamic real-time data capture, access, repository, maintenance and administration functions.

Technology
Axiom products are based on multi-tier component architecture, database independent and operate on virtually any hardware and operating system including Linux, UNIX, and Windows).
XML based Visual Business Rules™ empower Business and IT users with efficient means of communication across vast volume of data sources and can integrated into any environment with efficient cost and resource considerations.