Articles

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February 2020

Vectorization: The Rise of Parallelism

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Wilmott Magazine

New challenges in the financial markets driven by changes in market structure and regulations and accounting rules like Basel III, EMIR, Dodd–Frank, MiFID II, Solvency II, IFRS 13, IRFS 9, and FRTB have increased demand for higher-performance risk and analytics. Problems like XVA can be extremely computationally expensive to solve accurately. This demand for higher performance has put a focus on how to get the most out of the latest generation of hardware.

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Managing Counterparty Risk & Basel III: Quantifi & EY Survey

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In this article, Dmitry Pugachevsky, Director of Research, analyses the results of this survey and discusses whether banks are ready for counterparty risk elements of Basel lll. Basel III significantly changes the way in which financial institutions address counterparty credit risk (CCR) and credit value adjustment (CVA). Enhancing counterparty credit risk management practices is a key focus for banks. This is in response to changes in accounting rules and new prudential and market regulations, which have tightened substantially following the financial crisis. Collectively, these changes are having a deep impact on the market and the way banks price and manage the risk associated with derivatives. 

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Microservices – The New Building Blocks of Financial Technology

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The derivatives landscape has evolved greatly over the past few years, driven by the scale and pace of regulatory change, economic unease and competitive pressures. These drivers have heightened the attention on risk technology and operations, forcing firms to re-think their business operating models. The rapid pace of innovation in technology presents a whole new range of possibilities for how technology can be leveraged in financial markets. 

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Alternative Methods For Calculating CVA Capital Charges Under Basel III

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The global financial crisis brought counterparty credit risk and credit value adjustment (CVA) very much into the spotlight. The Basel III proposals first published in December 2009 introduced changes to the Basel II rules including a new capital charge against the volatility of CVA. As the Basel committee noted, two thirds of the counterparty risk related losses during the credit crisis were actually from CVA volatility rather than defaults. Not surprisingly then, the new CVA ‘VaR capital charge is quite punitive and worthy of focus.

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CVA, DVA & Bank Earnings

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This week’s Learning Curve was written by David Kelly, Director of Credit Products, and Dmitry Pugachevsky, Director of Research, at Quantifi.

Credit value adjustment is the amount subtracted from the mark-to-market (MTM) value of derivative positions to account for the expected loss due to counterparty defaults. CVA is easy to understand in the context of a loan–it is the loan principal less anticipated recovery, times the counterparty’s default probability over the term of the loan. For derivatives, the loan amount is the net MTM value of derivative positions with that counterparty.

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How the Credit Crisis has Changed Counterparty Risk Management

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In this article, David Kelly, Director of Credit Products at Quantifi, discusses how the credit crisis and regulatory responses have forced banks to update their counterparty risk management processes substantially. New regulations in the form of Basel III, the Dodd-Frank Act in the U.S. and European Market Infrastructure Regulation (EMIR) have dramatically increased capital requirements for counterparty credit risk. CVA desks have been developed in response to crisis-driven regulations for improved counterparty risk management. How do these centralized groups differ from traditional approaches to manage counterparty risk, and what types of data and analytical challenges do they face?

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Basel III & Systemic Risk

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One of the key shortcomings of the first two Basel Accords is that they approached the solvency of each institution independently. The recent crisis highlighted the additional ‘systemic’ risk that the failure of one large institution could cause the failure of one or more of its counterparties, which could trigger a chain reaction.

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