Author: jerome

Introduction to Open Source Risk Engine (ORE) XML

This short video is the first in a series of introductory webinars that introduce various aspects of the Open Source Risk Engine (ORE). Scott Sobolewski, Principal at Quaternion, walks you through the ORE XML trade detail specification, which serves as the primary input into ORE’s pricing and risk calculations. ORE XML captures the individual trade economics for any type of OTC derivatives instrument – for more detail, please visit https://www.opensourcerisk.org/xml/

Wipro and Quaternion Partner to Launch Standard Initial Margin Model (SIMM) Solution

Quaternion has announced a partnership with Wipro, the leading global information technology, consulting and business process services company, to provide joint SIMM-related consulting services to clients covered by Uncleared Margin Rules (UMR). Our “SIMM-in-a-box” offering will allow financial institutions to calculate trade sensitivities, generate CRIF (Common Risk Interchange Format) files, and calculate initial margin in-house, in addition to other benchmark and validation-relation solutions.

For more information, please find the press release here. 

Podcast with AcadiaSoft – “Crunch time: Why data standardization in OTC Derivatives matters”

The standardization of the way the Over-The-Counter bi-lateral derivatives industry records and digitizes trade details is hugely important. But the process of achieving those methods of standardization is anything but simple. The brand new episode of our ‘Ahead of the Curve’ #podcast series sees our panel of experts discuss why data standardization in OTC Derivatives is so vital and how the industry can look to prepare.

To get under the skin of this highly topical issue, Fred Dassori and Richard Barton from AcadiaSoft are joined by Donal Gallagher, Chief Executive at Quaternion Risk Management, who shares his outlook for standardization: “The industry is ready for standardization, but in practise I think firms need to allow more time. I think they need to start earlier on this journey of preparedness to allow more time for testing, to allow more time for processes to bed in and to understand what standardization needs to be put in place”.

Listen to the full discussion, tune in to the latest episode ‘Crunch-time: why data standardization in OTC Derivatives matters

A Time of Stress: SIMM Passed the Test – ISDA SIMM™ Data Study

In February 2020, the COVID-19 pandemic began to sweep across the world, sparking a global shutdown and ushering in the beginning of a steep recession and potentially ushering in an indeterminate period of global economic uncertainty. Selloffs in the Equity, Bond, and Commodity markets began to produce losses ranging from 35% to 40% from their all-time highs, leading to volatility levels not seen since the recession in 2008. The OTC derivatives market had its share of volatility as well, seeing high yield CDS indices reaching new highs in March. As the volatility picked up, so did collateral swings and movements across all markets, including the OTC derivative market, prompting Central Counterparties (CCPs) to adjust their margin models mid-stream to account for collateral shortfalls. The impact of the COVID shutdown also prompted regulators across the globe to delay the margin rules for bilateral OTC derivatives by one year.The Recent Volatility and ISDA SIMM™

As market volatility increased, risk models in the cleared OTC markets adjusted rapidly to ensure firms were adequately covering risk, but on the bilateral OTC side, firms exchanging margin using the ISDA SIMM model (SIMM) had experienced something entirely different. SIMM is the initial margin model used by all firms that are in scope for the non-cleared margin rules to exchange regulatory initial margin. SIMM is by design a model that is intended to avoid procyclicality. It was conservatively built to ensure it could withstand market shocks to allow firms who use the model to cover their risk without making adhoc adjustments, even through a highly volatile market period of stress. During the initial volatility period of February through March 2020 many industry experts questioned whether SIMM was built to be able to withstand these shocks. By all intents and purposes, SIMM did withstand the period of stress and volatility based on the data and evidence that we will demonstrate in this study.In addition, SIMM does have a robust governance structure in place to ensure that if there are observations of exceedances produced by the model due to new periods of stress, they are identified and the model is altered accordingly to ensure risk is being appropriately captured and that the model remains conservative enough to avoid future events of procyclicality.

In this data study we explore exactly how SIMM performed during the period of January through mid-April 2020. We will look to see what, if any, exceedances took place across asset classes and compile benchmark data to illustrate how SIMM performed against Value-at-Risk (VAR) models during other periods of stress. We will also look to make recommendations based on the data observed to any changes we believe could benefit the model.

Acadia QRM SIMM Data Study 2020

Simm may come with a side benefit – a common data standard

Quaternion’s ORE XML trade format standard is being widely adopted by the industry through client subscriptions to our partnership with AcadiaSoft for risk-related initial margin (SIMM) compliance solutions, along with steady open source adoption. While the AcadiaSoft Services have certainly experienced certain mild growing pains referenced in the article, industry-wide adoption of ORE XML will lead to greater standardization in the OTC derivatives market, and potentially bring with it even greater synergies and cost reductions as we look to offer more value-added risk services to the industry.

Read the full article on RISK.net

AcadiaSoft and Quaternion Form Risk Services Partnership

Norwell, MA, and Dublin, Ireland August [2], 2018 – AcadiaSoft Inc., the leading industry provider of margin automation solutions worldwide, and Quaternion Risk Management Ltd., a leading risk analytics firm, today announced the formation of a partnership to provide risk services for firms subject to initial margining requirements for non-centrally-cleared derivatives. The initiative couples AcadiaSoft’s proven capabilities in automation with Quaternion’s extensive quantitative expertise and will enable AcadiaSoft clients to access a range of services via the secure environment of the AcadiaSoft Hub.

“Combining AcadiaSoft’s existing infrastructure with our risk analytics tools presents opportunities to create new products that will greatly benefit both the smaller players in the non-centrally-cleared market facing near-term hurdles, as well as larger, established institutions looking to reduce spend on functions that have become ‘business-as-usual’ and could now be more efficiently outsourced and standardized,” said Donal Gallagher, chief executive officer at Quaternion.

Initially, the partnership will focus on helping firms with non-centrally cleared derivatives portfolios meet the operational and regulatory challenges associated with margin requirements. On September 1, 2016, the largest banks that trade non-centrally cleared derivatives were required to post and collect initial margin (IM) due to a new margin framework established by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO), and each year since, and through 2020, those requirements touch a growing set of sell-side and buy-side firms.

“We expect to be able to significantly cut the burden placed on market participants by the non-cleared margin rules and make achieving compliance a straightforward process – even for relatively small firms,” said Fred Dassori, head of Risk Services and corporate development at AcadiaSoft. “After collaborating with the team at Quaternion on a range of projects over the past year, we’re excited to now be formalizing our partnership, and we’re looking forward to working together to greatly expand the set of tools we offer and give our clients a simple and efficient path forward.”

By offering these future services through the same platform as AcadiaSoft’s existing Initial Margin Exposure Manager and MarginManager products, which sit at the heart of the current IM calculation, reconciliation, and collateral messaging processes, AcadiaSoft and Quaternion aim to make their new risk services as seamlessly-integrated into existing industry workflows as possible.

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About AcadiaSoft, Inc.

AcadiaSoft, Inc. is a financial industry collaborative that is uniquely focused on delivering margin automation and standards for counterparties engaged in collateral management. AcadiaSoft’s Advisory Groups, Best Practice Forums and Working Groups provide a unique framework for integrating the thought leadership and capabilities of over 650 market participants, market infrastructures and key service providers across the industry.

Owned and backed by the investment of 17 major industry participants and infrastructures, the AcadiaSoft community has grown to more than 650 client firms exchanging approximately $400B (billion) of collateral on daily basis. The Company’s growth has been driven by regulatory change in the derivatives industry that is increasing the demand for automated, transparent and verifiable collateral management.

AcadiaSoft is headquartered outside of Boston in Norwell, MA and has offices in London, Tokyo and New York.

For more information, see www.acadiasoft.com.

About Quaternion Risk Management

Quaternion Risk Management Limited is a capital markets consulting practice advising on and implementing complex projects with a focus on the quantitative aspects of risk management, trading and finance. Quaternion has worked with some of the world’s leading financial institutions. The firm is headquartered in Dublin, Ireland with offices in London, Dusseldorf and New York. Quaternion partners with Columbia University on systemic risk projects and launched Columbia University’s Fintech Lab in late 2016. opensourcerisk.org is Quaternion’s open source contribution to the risk community.
For more information on Quaternion, see www.quaternion.com

Press Contacts:

Eleis Brennan
Intermarket
+1 212-754-5610
ebrennan@intermarket.com

Laura Craft
AcadiaSoft
+44 20 3954 0196
laura.craft@acadiasoft.com

Neil Ryan
Quaternion Risk Management
+353 1 678 7922
neil.ryan@quaternion.com

Big Data and Graph Theoretic Models: Simulating the Impact of Collateralization on a Financial System

In this paper we represent a financial system using a weighted directed graph model. We simulate and analyze the impact of financial regulations regarding the collateralization of derivative trades on systemic risk, employing a novel open source risk engine. The analysis finds that introducing collateralization does reduce the costs of resolving a financial system in crisis. It does not, however, change the distribution of risk in the system. The implications of the analysis highlight the importance of scenario based testing using hands on metrics to quantify the notion of system risk.

View Paper

Forecasting Initial Margin Requirements – A Model Evaluation

The introduction of mandatory margining for non-cleared portfolios has major implications for the pricing and risk measurement of OTC derivatives. In particular, a model for estimating future initial margin requirements is necessary to enable the calculation of pricing adjustments (MVA), net counterparty credit exposures and credit capital (RWA). Existing literature on the topic suggests a model which makes use of regression techniques, but little detail is available on the predictive quality of these models within a Monte Carlo simulation framework. We review these regression-based initial margin models in detail and compare their output against the actual margin requirements measured by the ISDA SIMM methodology. We observe that the models generally perform well for single trades but show some degradation for single option products and larger diversified portfolios. We investigate potential extensions and improvements to the model, along with examining some additional “conservatism” features that may have application in the context of credit exposure measurement. The Initial Margin modelling approaches discussed here are similarly applicable to centrally cleared or exchange-traded portfolios.

View Paper

ISDA Whitepaper – The Future of Derivatives Processing and Market Infrastructure

International Swaps and Derivatives Association highlights Open-Source as future of technology infrastructure.

Download the Whitepaper

Roles as Experienced Senior Consultants and Principal Consultants

We are looking for smart, dynamic, and flexible people to help us deliver for our clients. We specialise in the quantitative analysis of cash and derivative products in fixed- income, equity and commodity asset classes, from standard products to highly structured variants.

You will work with the best people, use the most up to date technologies, solve the most challenging customer problems.


Ideal Candidate

Quantitative skills

• An excellent degree in Mathematics, Physics, Computer Science, Engineering, Economics with a quantitative specialization, or a similar discipline;

Development Experience

• Demonstrate good knowledge in C++
• In addition, knowledge of QuantLib, C#, Matlab, VBA and SQL would be
useful
• Use of source control, e.g. GitHub

Finance knowledge

• Understanding of
• Pricing methods
• Monte Carlo methods for risk and xVA

Personal skills

• Ability to mature into a principal consultant, leading a project and dealing with clients
• Proven delivery capability
• Strong communication skills: verbal and written
• Ability and willingness to work both independently and as part of a distributed
international team
• Willingness to travel and work in Ireland, Germany and the US

Years’ experience

• 2 years – 5 years+


Quaternion supports clients in trading, risk management and finance functions.

We specialise in the quantitative analysis of cash and derivative products in fixed- income, equity and commodity asset classes, from standard products to highly structured variants. Our services encompass:

• The quantitative analysis of financial contracts,
• The development and validation of models and methods for pricing, P&L and
performance measurement,
• Market, liquidity and credit risk analysis and, finally,
• Integrated market and credit risk measurement for the purpose of analysing
an institution’s risk bearing capacity.

Special expertise

These services range from the analysis of single products or positions to independent portfolio valuation and risk analysis, and from validation and development of methods to their concrete application to an entire book of business. We have special expertise in the areas of:

• CVA/DVA/FVA and integration with OTC clearing
• Initial Margin and dynamic initial margin
• Multicurve pricing, OIS discounting
• Back testing methodologies and implementation
• Stress testing
• Model calibration
• Model validation

Location

We are currently looking to grow the team in London, but we are always on the lookout for talented individuals for our offices in Dublin, Germany and the US.


If you are interested in working with us, please contact us with your CV.

Graduate and Junior Mathematics, Physics and Computer Science Candidates

We are looking for smart, dynamic, and flexible people to help us deliver for our clients. We specialise in the quantitative analysis of cash and derivative products in fixed- income, equity and commodity asset classes, from standard products to highly structured variants.

You will work with the best people, use the most up to date technologies, solve the most challenging customer problems.


Ideal Candidate

Quantitative skills

• An excellent degree in Mathematics, Physics, Computer Science, Engineering, Economics with a quantitative specialization, or a similar discipline;

Development Experience

• Demonstrate good knowledge in C++
• In addition, knowledge of QuantLib, C#, Matlab, VBA and SQL would be
useful
• Use of source control, e.g. GitHub

Finance knowledge

• Understanding of
o Pricing methods
o Monte Carlo methods for risk and xVA

Personal skills

• Ability to mature into a principal consultant, leading a project and dealing with clients
• Proven delivery capability
• Strong communication skills: verbal and written
• Ability and willingness to work both independently and as part of a distributed
international team
• Willingness to travel and work in Ireland, Germany and the US

Years’ experience

• Graduate – 2 years


Quaternion supports clients in trading, risk management and finance functions.

We specialise in the quantitative analysis of cash and derivative products in fixed- income, equity and commodity asset classes, from standard products to highly structured variants. Our services encompass:

• The quantitative analysis of financial contracts,
• The development and validation of models and methods for pricing, P&L and
performance measurement,
• Market, liquidity and credit risk analysis and, finally,
• Integrated market and credit risk measurement for the purpose of analysing
an institution’s risk bearing capacity.

Special expertise

These services range from the analysis of single products or positions to independent portfolio valuation and risk analysis, and from validation and development of methods to their concrete application to an entire book of business. We have special expertise in the areas of:

• CVA/DVA/FVA and integration with OTC clearing
• Initial Margin and dynamic initial margin
• Multicurve pricing, OIS discounting
• Back testing methodologies and implementation
• Stress testing
• Model calibration
• Model validation

Location

We are currently looking to grow the team in London, but we are always on the lookout for talented individuals for our offices in Dublin, Germany and the US.


If you are interested in working with us, please contact us with your CV.

Daisy Chains and Non-cleared OTC Derivatives

By Donal Gallagher, Roland Lichters, Sharyn O’Halloran, and Roland Stamm

The non-cleared over-the-counter (OTC) derivative market is estimated at $493 trillion notional [1]. One of the central triggers of the 2008 Financial Crisis was financial institutions’ excessive exposure to counterparty risk. These exposures peaked at over $4.5 trillion in 2008 [1]. The response of the global regulatory community to the financial crisis has been to introduce regulations and standards aimed at reducing the amount of counterparty credit risk in the financial system. These initiatives gave rise, for example, to the introduction of mandatory clearing for certain common classes of derivatives (cleared derivatives) and more recently the introduction of similar standards for non-cleared derivatives [2]. The primary means promoted to mitigate risk are mandatory variation margin (collateral against today’s value) and mandatory initial margin (collateral against the change in valuation in the event of default). The total amount of initial margin introduced as a result of these changes is estimated at $315 billion for US banks alone [3]. The regulatory expectation is that most derivatives classes will ultimately be subjected to mandatory clearing; however, the current volume and the slow rate of convergence toward mandatory clearing suggest that large volumes of derivative contracts will continue to be subject to the non-cleared OTC regime for the foreseeable future.

Download the Paper

SPS Spotlight – FinTech and Financial Regulation

Streamed live on 15 Nov 2016

Columbia University School of Professional Studies presents
A Panel Discussion with Professor Sharyn O’Halloran, Thomas Deely, and Guests

A key issue for regulators and the financial service industry is mitigating systemic large-scale counterparty risk. Currently, individual financial institutions and regulators conduct systemic risk exposure analysis using proprietary models and data protocols absent any agreed upon baseline, best practices or public scrutiny. Without industry standards, shared benchmarks, or means to validate results, the impact of alternative policy interventions on the overall risk in the financial system remains uncertain.

This initiative showcases new open source analytical tools that develop highly granular trade and cross-asset class risk simulation and aggregate at the counterparty level. Bringing large-scale open source risk models to the public domain will enable a standard-based approach that facilitates research and greater understanding of the impact that policy levers have on the financial system.

Questions? Please contact: spsalumni@columbia.edu

Sponsors:

Quaternion Risk Management
tullett prebon information
Columbia School of Professional Studies
Columbia Business School
Columbia University Data Science Institute
Columbia Law school
Columbia School of International and Public Affairs

Moderator:
Ben McLannahan
US Banking Editor
Financial Times

Panelists:
Emanuel Derman
Director of the MS Program in Financial Engineering
Professor of Professional Practice
Industrial Engineering and Operations Research, Columbia University

Paul Glasserman, PhD
Jack R. Anderson Professor of Business
Decision, Risk, and Operations Research Director
Program for Financial Studies
Columbia Business School

Brian Ruane
CEO of Broker-Dealer Services & Head of Banks
Broker-Dealer and Investment Advisors Market and Alternative Asset Manager Segments
Bank New York Mellon

Mayur Thakur
Managing Director of Compliance Analytics
Goldman Sachs

Sharyn O’Halloran, PhD
George Blumenthal Professor of International and Public Affairs
Chief Academic Officer
Columbia University School of Professional Studies

Quaternion Risk Management announces the launch of opensourcerisk.org

Quaternion Risk Management announces the launch of opensourcerisk.org – the first end-to-end open source risk application. opensourcerisk.org will provide complex risk analytics for financial institutions through a series of releases.

Continue to follow our journey as, today, we launch our contribution to the development of next generation global risk standards. We welcome your contribution to our opensourcerisk.org framework as its evolves.

State-of-the-art credit exposure simulation: new approaches to credit risk

Quaternion Risk Management (Quaternion), the Quant consultancy risk and pricing specialists, are delighted to present an afternoon workshop in Frankfurt on Tuesday 9th June 2015 at 16.00 at Grandhotel Hessischer Hof, Friedrich-Ebert-Anlage 40, 60325 Frankfurt am Main, followed by drinks. Continue Reading…

Quaternion Risk Management powers the InCol Analytics Platform InCol Intelligence launched today

LONDON, 26 March 2015—Quaternion Risk Management Limited (“Quaternion”), provider of specialised risk analytics consultancy, services and software, is now powering InCol.   InCol structures and sources cost efficient senior secured term debt for rated and non-rated financial institutions.

Quaternion’s risk engine performs complex analytics and is the lynchpin of the InCol Intelligence platform. The platform allows issuers of, and investors in, senior secured term debt to optimise their positions and to assess where and when opportunities arise. It facilitates the unlocking of quality collateral pools from new issuers which can be matched with secured term debt investors’ requirements.Continue Reading…

Quaternion Risk Management collaborates with UBS Delta to deliver CVA Service launched today

LONDON, 17 October 2014—Quaternion Risk Management Limited (Quaternion), provider of specialized risk analytic consultancy, services and software are now working together with UBS Delta, the award-winning provider of risk and performance analytics to provide counterparty exposure, CVA/DVA analytics and reporting services to the financial and corporate community.

Quaternion’s risk engine and complex analytics have been integrated into UBS Delta to provide the CVA Service.

Continue Reading…