Marketeval is a one-stop solution for all your Market Risk Management needs. Be it calculation of VaR through a variety of customizable methods, or simulations, or liquidity analyses, or stress-testing or calculation of Risk Capital or generating insightful reports, Marketeval does everything with ease and flexibility within few clicks.
BACKGROUND
Much before the advent of Basel II in 2004, the Basel Committee had formalised the Market Risk measurement framework. Interestingly, of the total economic capital requirements for an insurance company, on an average, market risk capital contributes to about two third of total capital requirements. The Solvency II Capital Accord that is going to be implemented from 2012 onwards for insurance companies has proposed a comprehensive risk measurement framework, incorporating Market Risk as one of the components. As mentioned earlier, the Basel II Capital Accord had formalised market risk as early as in 1997.
WHAT IS MARKET RISK?
As per Basel, Market Risk refers to the risk of on or off-balance-sheet loss due to uncertain changes in market prices, such as changes in interest rates and equity prices (impacting the trading book) and foreign exchange risk and commodity prices (impacting throughout the bank).
AARSH MARKET RISK MANAGEMENT FRAMEWORK / MARKETEVAL
Aarsh Market Risk Management Framework – MARKETEVAL is developed within an overarching overall Enterprise Risk Management Framework. Accordingly, MARKETEVAL is a three-tier structure with the following primary components
- Establishing an appropriate Market Risk Governance Structure
- Computing an appropriate level of Market Risk Appetite in consonance with the business imperatives
- Market Risk Management Infrastructure
WHAT IS MARKETEVAL?
MARKETEVAL is a three-tier constitution that employs both a “top down” and a “bottoms up” approach. MARKETEVAL could be specifically customised in accordance with the strategy, organisation, product, and the other unique characteristics of the financial services company.
BRIEF OVERVIEW OF MARKETEVAL
MARKETEVAL is organised as follows:
Market Risk Governance Structure / MRGS
- Development of an Market Risk Management Guidebook clearly detailing the guiding principles of Market Risk Management Framework
- Development of a Risk Management Charter, setting up Risk management & Asset Liability committees for oversight, developing ownership of front office, mid office and back office, creation of an adequate Risk Management Vision & Strategy and driving implementation.
Market Risk Appetite / MRA
- Computing a specific level of Market Risk Appetite within the Risk Management Infrastructure
Market Risk Infrastructure
- Developing a comprehensive Market Risk Exposure Assessment / MRSA framework by estimating marked to market values of assets and liabilities.
- Developing a Market Risk Measurement / MRM framework. The MRMframework estimates capital through the factor-based approach / standardised approach and moves onto to the Value-at-Risk approach by aggregating risk & return through back testing, variance-covariance and Monte-Carlo simulations and estimating capital requirement at a very high confidence threshold.
- MRM Framework also performs Market Risk Stress Testing / MRST by simulating regulatory capital requirements primarily through shifts in interest rates.
- Developing a set of Market Risk Limits (MRL) like stop loss, concentration limits, specific limits for illiquid markets etc.
- Developing a comprehensive Market Risk Reporting / MRR infrastructure with a range of reporting capability to analyze exception reporting (breach of limits) and implementing mitigation and control measures
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