Market risk analysis
RizkManager calculates a set of market risk measures on overall (or consolidated) portfolios as well as drill down into asset classes, security types, regions/countries, sectors and individual securities. The calculations involve advanced mathematical models and Monte Carlo simulation based on either historical or hypothetical return distributions, currency rate changes and yield curve transformations. Monte Carlo is the preferred method to calculate VaR on portfolios containing non-linear instruments (e.g. fixed income). Traditional covariance (or parametric) approach would be inappropriate. The key portfolio risk measures are: Value at Risk (VaR), Expected Shortfall, Volatility and Tracking Error. While some sub-measures are: Marginal at Risk, Component at Risk, Incremental at Risk, Mean return and Kurtosis.

Back testing and stress testing
RizkManager supports entering user-defined scenarios to back test portfolios against historical events or to perform stress tests. The scenarios can be saved for later reviews. The back testing serves two purposes. The first purpose is to find out how a portfolio would have performed under a given historical event (e.g. during the 2008 financial crisis). The second purpose is to back-test holdings against recent market movements to forecast the volatility or tracking error of the portfolio. Stress tests are done by simulating extreme market scenarios such as a sudden collapse in equity markets combined with changes in interest rates. The system then calculates the impact on portfolio returns and risks.

Factor analysis & factor screening
By applying multi-dimensional regression analysis, RizkManager can analyze which market/macro parameters that the portfolios are most exposed to (e.g. oil, commodities, interest rates, currencies, other financial markets, industry sectors, etc.) Factor Analysis calculates the exposure to a provided set of parameters, while Factor Screening finds the parameters that best describe the portfolio performance.

Key Figures
RizkManager calculates a set of key figures that are often requested in RFIs, such as:
• Derivatives: the greeks (beta, delta, vega, rho, theta, gamma)
• Fixed income: convexity and misc. yield and duration measures
These figures are calculated on security level, and the system can then roll them up on sector, country, sec. type, asset class and overall/consolidated portfolio level.

Synthetic pricing of securities
In order to perform the market risk analysis and back testing described above, RizkManager needs to calculate synthetic prices for derivatives and fixed income instruments. The system is using Black Sholes for options and user-defined yield and credit curves for fixed income instruments, and combinations for futures, swaps, etc. This feature can also be utilised to provide back-office pricing for OTC options and non-liquid bonds. It is standard to automatically export synthetic bond prices to APX.