The central treasury of a major European telecoms group calculates and tracks Value at Risk (VaR) daily across its portfolios of financial instruments.
Previously, the team relied on a proprietary overnight batch process to estimate the covariance matrix for VaR calculations. The system was slow, inflexible, and difficult to re-run if errors were detected.

Technical support for the legacy software was also limited, prompting the treasury risk manager to seek a more transparent, configurable, and reliable solution.

A key objective was to accelerate price extraction from the firm’s treasury and risk systems and to perform covariance matrix estimations on demand, giving the team greater confidence and flexibility in its financial modelling and risk analytics.

Using SkySparc VaR Solution we can correct and re-calculate co-variance in no time. We are not dependent on overnight batch processing, which is a big advantage. - Treasury risk manager

“We knew SkySparc for solutions that work seamlessly with our treasury management system and for quality support,” says the firm’s treasury risk manager. “SkySparc VaR Solution seemed like a great fit for our new need.”

SkySparc provides an integration and processing platform enabling fast integration of financial systems within a client’s environment. It is a very efficient platform for developing tailored solutions without the time-scales and costs usually associated with bespoke development.

In this case, the client needed to extract prices from its treasury management system into a data matrix file, run the covariance matrix estimation analysis and feed the results back . SkySparc built the calculation module required for this and tailored SkySparc VaR Solution to manage the data, perform the analysis and import the calculations back to the treasury system.

We knew SkySparc for solutions that work seamlessly and for quality support. - Treasury risk manager

Today the firm’s treasury has a process for calculating the VaR co-variance matrix with the speed, flexibility and transparency it needs to be fully confident it can always respond to the business environment.

With SkySparc VaR Solution handling price extraction, covariance matrix calculation for many thousand correlations and integration back into the database now take less than ten minutes. Using the old solution took seven hours. This massive efficiency improvement gives the risk management team far greater flexibility. “We can now easily re-run the process if we find some missing or incorrect prices,” says the treasury risk manager. “Using SkySparc VaR Solution we can correct and re-calculate co-variance in no time. We are not dependent only on overnight batch processing, which is a big advantage.”

SkySparc VaR Solution also gives the risk management team greater visibility of what data is being used and how the calculations are performed. For example, initial parameters can be adjusted before each calculation process, such as the date range from which the solution will fetch historic data begins. “We can change things very easily if required,” observes the risk manager. “So we now feel comfortable that we have total control of this important risk management process. And given the responsiveness we have seen from SkySparc during the implementation, we’re confident that any future modifications or modeling requirements can also be accommodated within SkySparc VaR Solution.”

The new application was delivered within the required timeframes and budget by SkySparc’s consultants. The strong combination of systems development, quantitative statistics and financial markets expertise in the SkySparc team proved a winning combination for this project.