On a daily basis, the central treasury of this large European telecoms firm calculates and tracks Value at Risk (VaR) for its portfolios of financial instruments. Until recently, the treasury team was using a proprietary overnight batch process to estimate the co-variance matrix for the VaR calculation. But the application was proving inflexible – it could not be easily re-configured and re-run if errors came to light and also took a long time to run.
Technical support for the proprietary software was also lacking. The treasury risk manager felt It was clearly time for a “fresh start to remove all these obstacles” and embarked on the challenge of identifying a flexible and transparent solution.
A key requirement was to speed up the process of extracting prices from its Wallstreet Suite treasury management system and performing the co-variance matrix estimation, giving the treasury more confidence in its ability to do financial modeling flexibly and cost-effectively at the point of need.
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.