Risk & Quant Consulting
Case Study – LPACalc
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The contract included the development of an automated assessment solution on the basis of the LPA-model library for the daily assessment of structured assets as well as for the simulation of market value und cash flow risks. The client wanted to be able to instantaneously determine changes in value of complex financial instruments in his portfolio and assess their sensitivities.
The Strategy / Our Approach
In in-depth interviews with the asset management of the client, the requirements for the assessment solutions were determined, especially regarding the degree of automation and the exact structuring and assessment of existing investment products. Together, we developed individual risk metrics, sensitivities, and market scenarios with a keen eye for regulatory requirements. The daily assessment routine, scenario calculations, and the transmission to the inventory-owning system were customised according to the client’s needs. Access to the pricing-library of LPACalc was given via an MS Excel Add-in, which enabled flexible processing and the evaluation of results with little integrational effort.
LPACalc is an assessment and structuring tool that has been developed over ten years in close cooperation with banks and insurances we consulted. As a flexible MS Excel add-in, it facilitates the modular structuring of financial instruments in the fields of interest rates, currencies, inflation, resources, shares, and loans. Separate components can be easily combined to build the desired product structure and can be assessed with a suitable model. For this purpose, a range of assessment approaches is available: from analytical models to simulation models with stochastic volatility extension. The results of evaluations and analyses can be automatically transferred into a reporting-format and further processed. All models are checked for marketability on a daily basis and adjusted to developments by the quantitative analyst team.
The result of the project was a separate bank-independent evaluation of all structured bonds for accounting, the determination of sensitivities for the integration into the overall-VaR as well as the simulation of tailored scenarios to meet supervisory requirements. After the project ended, the client was able to self-assess his entire inventory of structured bonds, easily integrate new investments, and assess intrinsic market risks according to internal and external requirements. Since its implementation, the assessment solution, which has been tested by us for marketability and plausibility of assessment and scenario results, has automatic access to LPACalc. The supply of relevant market data and their processing happens centralised via a LPA-market data server which the client can access at the touch of a button.