Published in the Journal of Risk and Financial Management by Calypso Solution Architect Dr. Peter Zeitsch, this paper proposes a new Merton model calibration that employs deep out-of-the-money equity put volatilities and a simple technique for risk neutrally deriving the default barrier. This has important implications for measuring counterparty credit risk and leads to a new approach to trade equity against credit. The strategy is fully back tested in Calypso.
The Buy-side Derivatives 2016 survey, conducted recently by Asia Risk survey and sponsored by Calypso Technology, reveals derivatives to be powerful but unwieldy management tools. Used to safeguard a firm’s predictable sources of return, they also pose the greatest operational and risk management challenges to its portfolio. The survey also asks the buy side’s opinion of blockchain, and the market disruption it threatens
Calypso Risk and P&L Product Manager Fabrice Thomas provides an overview of Calypso’s P&L methodology
Because there are so many dimensions to measuring P&L, identifying the specific sources of gains or losses for large trading books can be quite challenging. This brief reference paper provides insight into how Calypso computes both MTM values and P&L for all asset classes. Our approach is compliant with the Volcker Rule as well as Dodd-Frank, and provides front and middle office personnel with the insights they need to make informed decisions in real-time.
Calypso financial engineers, Rubin Rajendram, Mike deVegvar and Pardha Viswanadha provide an overview of BCBS 279, also known as the “Standardized Approach to Counterparty Credit Risk (SA-CCR)”
The Standardized Approach to Counterparty Credit Risk, introduced by Basel in April 2014, replaces both the Current Exposure Method (CEM) and the Standardized Method (SM). The IMM shortcut method will be eliminated once SA-CCR takes effect, which is scheduled for January 1, 2017. In the Basel June 2013 proposal, SA-CCR was referred to as the Non-Internal Model Method (NIMM).
Calypso financial engineers, Rubin Rajendram, Mike deVegvar and Pardha Viswanadha provide an overview of BCBS d352, also known as the “Fundamental Review of theTrading Book (FRTB)”
In January 2016, the Basel Committee on Banking Supervision (BCBS) issued the standards for the minimum capital requirements for market risk, also known as the “Fundamental Review of the Trading Book (FRTB).” FRTB is aimed at replacing the current set of measures under Basel 2.5 with a more coherent and consistent regulatory framework. The changes suggested within the FRTB rules are sweeping and cover numerous aspects of the trading book – including the definition of trading book vis-à-vis banking book, market/liquidity risk measurement, capitalization, and the supervision of internal risk models.
White Paper by Celent
James Wolstenholme, at Celent, suggests moving to the asset management IBOR services matrix
The IBOR Services Matrix brings order and well-established service-oriented architecture (SOA) design principles to create a cohesive IBOR framework, which is required for successful, comprehensive asset management implementations.
Asia Risk survey finds that investment managers are accounting for an ever-larger share of derivatives trading volumes but, as Joe Marsh explains, face challenges both in terms of regulations and technology
Trading of derivatives contracts is steadily rising, particularly among investment management firms (asset managers, pension funds, insurance firms, sovereign wealth funds, family offices, and other institutional investors).
Gary Goldberg, Principal Financial Engineer at Calypso Technology, recommends a methodology for building USD interest rate curves to price cleared swaps
This article presents Calypso’s recommendations for building USD interest rate curves for the pricing of cleared swaps. The importance of the FRA-OIS spread in governing the relation between the discount and index curves is illustrated with a detailed example. The recommendations in this article are believed to produce curves that are a reflection of market economics, easy to build, and do not allow arbitrage.
Calypso in association with Solum Financial Limited examines the inevitable fragmentation of clearing.
On the basis of current trends, banks taking on new OTC clearing clients will be highly selective and some will move away from third-party clearing altogether. Risk management issues and clearing broker risk are bound to rise as clearing services providers retreat. Charges seem certain to increase significantly because of the banks’ cost pressures as well as the supply-demand imbalance and, in all likelihood, the full upward adjustment in charges for clearing services is a long way from being complete.
Calypso looks at how growing banks grapple with complex treasury challenges.
Seismic shifts in global regulation and a more complex banking landscape are leaving treasurers vulnerable. Legacy treasury management systems cannot meet increasing national and cross-border demands, or provide the real-time decision support tools needed to optimally monitor and control risk. No longer is it adequate to simply manage cash and capital; the treasury management systems of today must encompass critical enterprise-wide risk functions, such as funding, liquidity, ALM and portfolio management.
David Little, MD Strategy & Business Development, Calypso Technology, looks at the drivers of collateral’s rise to prominence.
Today, few would disagree about the prominent role that collateral has come to occupy on the buy-side. In this paper, we will briefly look at the reasons for this and the drivers of collateral’s rise to prominence, and consider the implications for buy-side firms.
Calypso’s R&D team explains the role of MVA
The concept of funding value adjustment (FVA) – the cost over-and-above the risk-free rate incurred by the institution to fund derivative positions – is now well-known by the market. It arises primarily due to the asymmetry in the funding of uncollateralized client trades versus the hedges that are executed in the professional market under two-way zero threshold collateral support agreements (CSA).
Martin Whybrow, founding editor of the International Banking Systems Journal , looks at the return of rationalization in the trading sector.
What goes around comes around. After going quiet during the financial crisis, there is a push again to streamline and rationalize trading operations. There had been a fair amount of activity along these lines within tier one and two banks prior to 2008. Now, as the dust has gradually settled, the trend is reappearing. The business drivers are not much different but one question is whether there will be a utility aspect this time around? Those with long memories in this sector will recall some earlier initiatives to set up a bureau to support the trading operations of multiple banks. Perhaps this time, such endeavors will actually succeed.
David Kelly, Director of Financial Engineering, Calypso Technology explores the new standardized approach for counterparty credit risk.
A central goal of the Basel Committee in releasing the new Standardized Approach for Measuring Counterparty Credit Risk (SA-CCR) in March 2014 was to ‘improve the risk sensitivity of the capital framework without creating undue complexity’. The previous standardized approaches were roundly criticized for not sufficiently reflecting the economics of unique portfolios, especially with regard to volatility, and therefore not providing institutions with a true non- internal model alternative for calculating counterparty credit risk.
Peter Zeitsch, Senior Product Manager, Front Office, Calypso looks at the challenges of new value adjustments in pricing
What is the fair value mark-to-market for a derivative? Is it Libor discounted? Overnight Index Swap discounted? Or do you need to take into account other factors such as counterparty credit exposures or funding costs? The answer right now is that you can find both views. Some banks are willing to adjust the value of their books to take into account credit and funding risks and others are not. The result is one street but two different prices for every trade.
This report looks at the challenging world of CCP collateral management from the perspective of CCPs themselves. Finadium conducted detailed interviews with major CCPs worldwide including several in emerging markets to hear how they view the role of collateral for both risk management and as a potential competitive lever in the marketplace.
Until recently, liquidity risk has not been a primary factor taken into consideration by banks when developing business strategies. To an extent, this may have been understandable in the past as banks have traditionally traded relatively simple securities in highly liquid markets. However, incentivized by the advancements in financial engineering and increasing competitive pressures over the last 10 years, banks have begun to trade more heavily in complex financial instruments and in more obscure markets.
This report looks at liquidity risk management in a post crisis world.