Credit Risk
QR Risk Server offers an enterprise-wide Counterparty Exposure and Credit Risk Management solution. This can be used by any type of trading environment in
conjunction with QuantRisk Trade Capture, or as a stand-alone system integrated with your in-house trade capture system.
We cover the needs of any size energy and commodity companies, any corporations, banks, hedge funds, treasuries, asset managers and brokers.
We cover the needs of any size energy and commodity companies, any corporations, banks, hedge funds, treasuries, asset managers and brokers.
Universal Plug & Play Capability. The Key characteristic of QuantRisk exposure and credit system, is that its advanced computational architecture allows it to use the complex MTM valuation details created by your internal systems, or by QuantRisk, and simulate exposure and credit risk around it, without ever needing to know these complexities of your MTM and cash flow valuation! In doing so, it offers perfect integration capabilities with existing systems.
Key functionalities of QuantRisk platform in relation to exposure and credit risk management:
Counterparty Exposure and Credit Management
- Ability to create, maintain and store a Credit Limit at the Counterparty or Master Agreement level.
- Ability to facilitate collateral management as it relates to margin posted or held, including those related to cleared and futures transactions.
- Ability to store and maintain user-defined credit ratings and external credit ratings including S&P and Moody's, including transition probability matrix (used for simulations).
- Ability to enter a user-definable set of default rates per counterparty.
- Enforcing counterparty limit and configurable workflow for excisions.
- Store recovery rates.
- Ability to capture and view Credit Limit Line.
- Exception reporting.
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Full Control During valuation
When computing risk some of the features you can set or control are:
- Holding Period can be a few days for Value at Risk or many years for Cash Flow at Risk.
- Number of Monte Carlo simulations used to form a probability distribution.
- Percentile or Risk level (95% to 99%) at which risk statistics are to be computed and displayed.
Exposure and Credit Risk Measurements
- Counterparty Exposure offers today’s MTM and Monte Carlo simulation of forward positions per counterparty.
- Counterparty Credit Risk offers a joint Monte Carlo simulation of forward positions per counterparty, along with a simulated counterparty defaults using the credit rating transition matrix, with user defined cross-correlations.
- Multiple currencies are supported and positions can be aggregated in any desired currency.
- System supports netting arrangement that reduce overall exposure by requiring the counterparties to offset trades so that only a net amount in each currency is settled.
- Ability to report day to day changes to credit limit, credit exposure and credit availability.
- Calculate credit and exposures separating and aggregating:
- Settlement Risk: accounts receivables (invoiced but not yet paid from previous month), and account settled today and billable at next period
- Potential future exposure and mark-to-market
- All exposure can be further refined by marginal valuation at given business portfolio levels: country, industry category, etc.
- All valuation can be stressed for market levels, volatility and default rates.
Monthly Counterparty Exposure
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Risk Matrix. The system offers the most comprehensive display of risk statistics and visualization. For every indicator among the above Risk Metrics, the full distribution is generated and the following statistics are computed at any desired percentile, on a daily basis until the end of the time horizon:
| Expected Loss | Tail Risk |
Mean or Expected Value |
Tail Gain |
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This is the average exposure if default occurs. It is the average above the red exposure risk tail of the distribution. This statistic is called CEaR (Conditional Exposure at Risk) as it is the average exposure conditional to default. For skewed returns, it can be significantly higher than Exposure at Risk . |
Exposure at Risk Tail is the worst case exposure scenario or the lower percentile of the distribution. If risk level is 95% it means that 5% of the time (or 1 time out of 20) exposure will fall below the red line. A useful number is Counterparty Exposure at Risk computed by the difference of green and red lines: VaR = Mean - Tail Risk |
This is the expected future exposure. It is also the mean value of the distribution at all moments in time. |
This is the lowest exposure tail, or your up side which is the higher percentile of the distribution, shown in light blue. It represents the best exposure case scenario. (Similar to Tail Risk, except in reverse) If risk level is 95% it means that 5% of the time (or 1 time out of 20) exposure will be above the light blue line. |
| Counterparty Exposure at Risk | Credit Rating Transition Probability Matrix used in Monte Carlo Simulation | |
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