Stress testing & Risk

Inbuild sensitivity analysis

Be it what-if analysis, Monte Carlo simulations to be run on a grid computing environment such as TIBCO GridServer (or its evolution, HPPCA), or advanced statistical models, Spotfire not only lets you see today's valuations but also what their value would be if their guiding parameters, e.g. risk free interest rate, were different. Spotfire allows calling calculations in Spotfire Expression Language, TERR (TIBCO's R), open source R, SAS, Matlab, KNIME, Python, C++ via GridServer, H2O or Spark. These calculations can be as simple or as complex as you require them to be.

For example, it can be your credit manager inputting new market information about the specific credit rating of a company to see the impact that has on portfolio valuation. Or it can be your CEO sliding a bar to input his/her beliefs regarding the macro-environment: this value be passed into the valuation of all assets, recalculating their value differently per each asset category, and bringing the final result back to Spotfire for your CEO's appreciation.

Check out this simple example of using Spotfire to measure operational risk, our Template on the Community site.

Figure 1. What-if analysis: how does a change in the scoring of a holding affect the portfolio risk exposure

Figure 2. Monte carlo simulation using Spotfire and TERR to simulate a scenario-based view of Economic Capital needs. resulting from changes in macro-economic environment. The user specifies parameters that determine the joint distribution of these two risk factors, and their contribution to Total Losses. Spotfire displays consequent estimated loss distribution of a dependent asset and respective economic capital needs (blue area of the bar chart).

Hyper-computing (HPPCA)

HPPCA is TIBCO's solution to hyper-computing. You can spin up a grid of computers to run in parallel and simultaneously any number of computations of any form, from C++ to TERR. The grid has the capacity to burst to the Cloud when needed to make sure all computing jobs run efficiently and successfully. From your dashboards and reports you can keep a bird's eye view on your risk exposure at any time.

Statistical approach to operational risk

There are three main approaches to handle this type of risk, according to Basel III:

* Basic Indicator Approach (BIA), which is legally defined to depend on the dimension of the bank

* Standardised Approach (TSA), which splits risk by business line and scales it by a predefined factor

* Statistical model (AMA). 

Taking the statistical approach to operational risk management has the potential to significally reduce capital requirements. Yet it can be computationally expensive. Specificalyl, it involves tight control over the following three dimensions:

1. Data Management: get different input from different data sources.
2. Core Component: functions and packages. Maintaining the code as easy to understand within the organisation.
3. Results Management: disseminating results across the business.

TIBCO's toolset allows you to keep full transparency and traceability over data sources, ensure the quality of any intermediate transformational steps and dissiminate result and reports across the organisation, ensuring not just scalabitily but also automation and alerting.

Further material

• Solution briefing on market risk
• Spotfire Risk Template: Loss Distribution Approach to Operational Risk - Analysis Template for TIBCO Spotfire®