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The ultimate guide to XVA calculation

Posted by John Hill on Mar 22, 2018 11:20:54 AM

X-Valuation Adjustment is a catch-all term for various adjustments made to derivative instruments. These kinds of calculations are computationally intensive: they require a modeller to calculate a larger number of default scenarios and the potential loss (Potential Future Exposure, or PFE) in each case. Agent-based simulation provides a framework to compute more accurate valuation adjustments for better risk management; let’s see why. 

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Topics: Building a Resilient Bank, Industry Application

Advancing your toolkit for better IFRS 9 compliance

Posted by John Hill on Mar 20, 2018 2:08:51 PM
 

"If we are walking along a cliff, it is not simply enough to feel solid ground beneath our feet, it is also nice to see how far from the edge we are."

Changes in accounting standards tend to be pretty dull, but this one is seismic. IFRS 9 introduces a new era for expected loss provisioning: banks now need to model expected losses throughout the lifetime of a financial instrument. In practice, this means simulating millions of realistic future scenarios in order to accurately compute probability-weighted losses. Advances in complexity science and computational economics have made this type of risk management possible, allowing financial institutions more than just simple compliance, but also true business value and competitive advantage.

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Topics: Building a Resilient Bank, Industry Application

Simulation to Explore Contagion Risk

Posted by John Hill on Mar 20, 2018 1:30:05 PM

Contagion risk is the risk that a shock to one financial institution spills over to others. In this way, small shocks can have significant effects. Contagion is one of the key dynamics that gives rise to systemic risk in a complex adaptive system. The complex web of interconnections between the constituent parts of the financial system can act as pathways along which instability spreads and amplifies.

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Topics: Building a Resilient Bank, Industry Application

Agent Based Models for Stress Testing

Posted by John Hill on Mar 20, 2018 10:03:40 AM

Traditional modelling approaches are ill-suited to the type of scenario-based risk management that stress testing is concerned with. Agent based modelling (or ABM), in contrast, provides a natural framework for exploring challenging scenarios faced by complex adaptive systems — as I shall illustrate later in this post with a simple mortgage model. 

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Topics: Building a Resilient Bank, Industry Application

We believe computational simulation is the key to radically better decisions. 

Our technology allows businesses to:

  • Understand the past by creating realistic models of the world from the bottom up.
  • Explore their environment by testing all possible decisions in a safe virtual environment.
  • Decide their future by leveraging the wisdom of computational simulation.

Simudyne is already in use by Tier 1 banks looking to address challenges relating to stress testing, contagion risk, and liquidity management.

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