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CALYPSOENTERPRISE RISK SYSTEM

Dr Philip Symes

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Introduction

Calypso's Enterprise Risk Service (ERS) is part of theirFront-to-Back software system

Calypso ERS provi!es the "i!!le #ffice risk f$nction

% Risk control an! risk mana&ement sol$tion

he system is !esi&ne! to mana&e

% market risk

% cre!it risk

%limits

he *ack testin& f$nctionality incl$!e! in the systemmeets the re+$irements from Basel2 ,RB approach

#perational risk is on the roa!map to *e inte&rate!

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Contents

Brief overview of the Calypso s$ite of pro!$cts

Brief overview of f$nctionality of Calypso ERS

echnical overview of Calypso ERS (how it works)

,nte&ratin& ERS with other Front #ffice sol$tions(Calypso an! other systems)

Scenario metho!olo&y

.pplication of metho!olo&ies in Calypso ERS /istorical sim$lations (!etaile!)

Stress testin&

0atchpoints for risk implementation

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Calypso ERS Areas

Calypso ERS is Calypso's new "i!!le #ffice riskmana&ement sol$tion

"arket risk areas

% Risk factor sensitivities

% /istoricalValue at Risksim$lation

% Stress testin&

% Back testin&

imits

% "arket risk

% Co$nterparty cre!it risk

Cre!it Risk

% Co$nterparty cre!it e3pos$re

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The Calypso Product Suite

Calypso is a cross asset Front-to-Back #ffice *ankin&software system

Calypso is !esi&ne! to work 5o$t of the *o36 an! isconfi&$ra*le for specific environments

Calypso's system architect$re makes it hi&hlyconfi&$ra*le an! e3ten!a*le

% 7ricin& li*raries can *e a!!e! in 8ava an! C99

% E3ternal !ata*ases can *e reference!% his makes it appropriate for !ynamic environments

Calypso interacts with other Front an! Back #fficesystems thro$&h information fee!s

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The Calypso Product Suite (cont!

S$mmaryof Calypso5sol$tions6

;Calypso

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N for FA pro!$cts 4-1GN for e+$ities

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Credit Ris% Si-ulation

he MTM plus add-onmetho! is fast an! conservative

in its risk ass$mptions B$t it is consi!ere! o$t!ate! *y many *anks Potential Future Exposure(7FE) is the propose!

new metho!

.n improve! cre!it risk han!lin& system will *e rea!ywithin the ne3t few months ?evelopment foc$s shiftin& towar!s cre!it risk

his new system will han!le collateral thro$&h Calypso=scollateral mana&ement system

his will *e Basel 2 compliant

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$ac% Testin&

Basel2 re+$ires that *anks *ack test their I.R mo!els

Calypso ERS meets this *y showin& he act$al 7D he no-action (hypothetical) 7D

he I.R an! 7D res$lts are store! every !ay for eachportfolio

he *ack test analysis is performe! a$tomatically at thespecifie! perio!

he analysis checks for the n$m*er of times the act$al7D e3cee!s the I.R% Classification is in Basel2 colo$rs re!@ yellow or &reen

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Stress Tests

Stress testin& scenarios are nee!e! to complement

sim$lations See RiskMetrics presentation for more !etails

hese are set$p in Calypso $sin& the Scenario E!itor% Shocks to the portfolio@ e& ,R steepeners@ are *$ilt

into the Workspaceof the main Calypso system

he Calypso scenarios analyses are $se! in ERS ess !rill!own f$nctionality is provi!e! in ERS than

Calypso

7ortfolios can then *e reval$e! *ase! on thesescenarios an! the res$lts can *e s$mmarise!

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Stress Tests

. c$stom stress test in Calypso=s Scenario Editor

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Li-its

imits are place! on Cre!it Risk factors

% E3pos$re limits per co$nterparty

% e&al entity hierarchies are applie! to co$nterparties

%.vaila*ility of assets (li+$i!ity)

imits can *e confi&$re! imits can *e set at at !ifferent perio!s

realtime@ intra-!ay or en! of !ay

imit e3ceptions are pro&ramma*le in the Calypsoworkflow

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Ad)anta&es o0 ERS

ERS has several a!vanta&es over lar&er systems Spee!

% Fast system with little overhea! that can r$n offe3istin& architect$re

,nte&ration with e3istin& Calypso F# an! B# systems

Small infrastr$ct$re an! reso$rce overhea!s

his makes the system s$ita*le for *anks with short

term positions with he!&e f$n! clients .lso s$ita*le for lar&er he!&e f$n!s where

infrastr$ct$re e3ists

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+atchpoints

Certain key parts of the proHect m$st *e monitore!

% See the POC Kitfor more !etails

he ne3t few sli!es !eal with points in key areas ofproHect implementation from philipsymescom=se3perience 7roHect level watchpoints

B$siness level watchpoints ?ata watchpoints

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Pro1ect +atchpoints

he scope of the proHect "$st have !etaile! re+$irements !oc$mente! Jee! to *e aware of 5scope creep6

7ro!$ction release cycle

.nalyse testin& re+$irements (7#C) Ens$re the release is controlle! (implementation)

.ll elements of the proHect sho$l! *e properly!oc$mente!

.cceptance (s$ccess) criteria for the proHect m$st *epre-!efine!

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$usiness +atchpoints

B$siness nee!s to $n!erstan! the risk meas$res *ein&presente!% his incl$!es I.R@ stress tests an! e3pecte!

shortfall

% Stakehol!er involvement is essential

Systems inte&ration% Software systems m$st *e compati*le

% se *ankin& an! in!$stry stan!ar!s where possi*le

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ata +atchpoints

?ata re+$irements are always $n!erestimate!

% ,n ho$se !ata so$rces prefera*le

% Jee! to analyse &aps in re+$ire! !ata

?ata an! systems m$st *e inte&rate!

% Calypso ERS $ses F# pricin& li*raries

% Jee! the a*ility to !rill-!own on !ata provi!e!

% Share! asset control across *$siness $nits

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Su--ary

ERS is Calypso's new risk service offerin&

,t is !esi&ne! to inte&rate with e3istin& Calypso systemsan! other Front #ffice systems an! pricin& li*raries

ERS incl$!es s$pport for /istorical sim$lation Basel 2 Stress testin&

Res$lts are s$mmarise! as reports Risk n$m*ers are han!le! thro$&h 7D vectors I.R meas$res are calc$late! from these hese meet re&$latory re+$irements@ e& Basel2