Reuters Reveleus Joint offering

1
May 18, 2004
Practical challenges in implementing Credit and
Market Risk solutions and ways to solve them
Arun Pingaley Sr. Solutions Architect Reveleus
an i-flex business
Closed Loop. Clear Vision.
2
Agenda

• Preparations prior to implementing a credit or
  market risk solution
• Addressing Challenges
• Data Management issues
• Traceability issues for audit-ability
• Adaptability issues for continuing changes to
  policies
• Delivering a common solution for the risk
  management eco-system
• Leveraging regulatory capital infrastructure for
  enhanced uses
• Economic Capital, RAROC and beyond
• Pre-requisites of a comprehensive solution

3
Preparations prior to implementing a Credit or
Market Risk solution

• Determine Scope of Final Solution
• Identify Credit and / or Market Risk solutions to
  be implemented
• Identification of a Business Sponsor, if not
  regulatory
• Identify a Data Centric approach
• Identification of a Project Team for
  implementation
• Risk Management resources
• Technical resources
• Take stock of Technological Investments
• To leverage current technology investments
• To ensure future purchases support the final goal
• Never forget the Goal Risk Management
• All decisions should be towards THIS goal.
• Technical decisions should not derail the project

4
Challenges Data Management Issues

• Identify Data Sources
• Data layouts, elements,
• Data transfer pipes
• Data frequency
• Real Time
• Periodic / Batch
• Data Quality
• Identify data quality issues
• Develop business rules to fix them
• Impute for missing data
• Data Integration
• Common codes
• Model Data for end-use
• Prevent hijack of the data model
• Delineate from Operational Data
• Test the Data

5
Challenges Traceability issues for Audit-ability

• Address Pillar II Supervisory Oversight
• Central Metadata Storage
• Technical definitions
• Business definitions
• Link the definitions
• Business definitions linked to technical
  definitions
• Link data model to data sources
• Ability to browse metadata
• Business definitions
• Tracing
• Parameterize transformations

6
Challenges - Adaptability issues for continuing
changes to policies

• Dont forget Pillar III Market Discipline
• Parameterize the solution
• Change is constant
• Business requirements
• Source layouts
• Data models

7
Challenges Delivering a common solution

• Risk Weighted Assets Calculations
• Risk Rating
• Value at Risk
• Risk Analysis
• Concentration Analysis
• Exposure and Collateral
• Rating Migration Analysis
• Utilization Analysis
• Aging, Recovery and Classification Analysis
• Simulations
• Stress Testing
• Back Testing

8
Challenges Leveraging Infrastructure

• Economic capital,
• RAROC
• Risk based pricing

9
Pre-requisites of a comprehensive solution

• Data Quality
• Data Integration
• Central Metadata
• Parameterized Computation Engines
• Ease of Maintenance
• Common Solution for all outputs

10
May 18, 2004
Practical challenges in implementing Credit and
Market Risk solutions and ways to solve them
Advanced Risk Management Workshop Preston
Auditorium, The World Bank Washington D.C. 16
21 May 2004
Closed Loop. Clear Vision.