Market risk and pricing
Market risk is perhaps a more evolved environment than credit risk, but techniques continue to develop and institutions need to be able to price ever more complex products. Whilst the management of market risk has been at the forefront of banks’ thinking for many years, institutions such as hedge funds and traditional fund managers are increasingly paying more attention to developing their market risk practices.
Our market risk expertise extends from advising on policy and methodology, pricing, model development and validation, specifying and selecting market risk systems, business analysis and quantitative resources for risk projects.
Client type
European investment bank
Location
UK
Client need
The client had an ongoing programme for the validation of pricing and risk analytic models. The models within the bank’s fixed interest derivative system were due to be validated, but the documentation for the models and the representation of products within the system was incomplete. The bank needed assistance in developing the validation programme. The products covered ranged from vanilla to exotics.
Our deliverables
Due to the lack of documentation much of the system and the models had to be reverse engineered. Once this had been done we produced a detailed validation plan in line with the client’s own validation policies.
Client
Hedge fund manager
Location
UK
Client need
The client had recently expanded its trading volumes and had started to enter into more complex products. The client wanted to upgrade its risk management practices to take account of the additional risks being undertaken and to ensure compliance with best practice.
Our deliverables
We reviewed the fund manager’s risk practices and identified areas of weakness. We advised the fund manager on the appropriate risk governance and policies that should be put in place. We then worked with the fund manager to develop a suite of reports and stress tests to be delivered from its recently implemented portfolio and risk management system.
Client type
Private bank/asset manager
Region
Asia
Client need
The client wanted to be able to perform stress tests on its security portfolios to ascertain areas of excessive concentration.
Our deliverables
We developed a stress testing model which took into account asset correlations and liquidity. We also calculated appropriate stress parameters to be input into the model.
Client
Treasury operation of retail and wholesale banking group
Location
UK
Client need
The client had embarked upon a proof of concept for an integrated credit and market risk management system. The client required assistance in quantitative business analysis.
Our deliverables
We provided quantitative business analysis to specify interfaces and test pricing and risk models.
Client
Pension fund manager
Region
Benelux
Client need
The client had decided to upgrade its risk management capabilities and was in the process of building a risk management department. The client had produced a draft risk management policy but wished to have this reviewed to ensure compliance with best market practice.
Our deliverables
Having held a series of meetings with senior client employees to ensure we fully understood the business, we reviewed the policy to identify areas of policy and procedures which could be improved and where the client fell short of best market practice. The scope included all areas of the fund manager’s risk practices including market risk, liquidity risk, tracking error and compliance with investment mandates.
Our findings were detailed in a report which was presented to management.