3  Library Definitions

This section enables you to create a library of definitions that are used across all the MRMM components.

Topics:

· Common UI Elements

· Portfolio

· Risk Factor

· RFET

· Stress Scenario

· Pricing Policy

· Bucket Definition

· Hybrid Model

Common UI Elements

This section describes the common UI elements in the Library menu.

Figure 4: Common UI Elements in the Library Menu Windows

The following table describes the common UI elements in the Library menu windows.

Table 4: Common UI Elements in the Library Menu Windows
Sl. No.	Element	Description
1	View	Click the View drop-down list to view existing definitions.
2	Search	Type the first few letters of the definition name that you want to search in the search box. The summaries whose names consist of your search string are displayed in a tabular format. In the Name column, click the name of the definitions you want to view. If there are multiple results for your search, try refining the search string by providing the exact names of the portfolio. From the breadcrumb on top, click the respective feature Summary link to return to the summary window after viewing details of the definition.
3	Add	Enables you to add a new definition.
4	Copy	Enables you to copy a definition. This is available for Portfolio only. Assign a Portfolio Name, edit the Description and click OK.
5	Delete	Enables you to delete an existing definition in the respective feature summary window. To delete a definition, follow these steps: 1. Select the definition name in the respective feature Summary window and click Delete . A confirmation dialog box is displayed. 2. Click OK to delete the portfolio. Note: You can perform this action for Portfolio, Risk Factor, RFET, Stress Scenario, Bucket Definition, and Pricing Policy.
6	Export	Enables you to export a definition to Excel, for offline viewing. To export a definition, follow these steps: 3. 1.  Select the definition name in the respective feature Summary window and click Export . 4. The portfolio is exported as an XLS file and gets downloaded. Note: You can perform this action for Portfolio, Risk Factor, RFET, Stress Scenario, Bucket Definition, and Pricing Policy.
7	Approve or Reject definitions	To approve or reject a definition, follow these steps: 5. 1.  Select the definition from the respective feature Summary window. The feature Definition window is displayed. 6. Click Edit . The Approve and Reject icons get enabled. If you wish to edit any fields, modify the fields and approve or reject. 7. Click Approve or Reject . The respective message is displayed. Approved definitions cannot be edited. Note: You can perform this action for Portfolio and Bucket Definition.
8	Page View Options	· Page Size Enter the number of entries to be viewed on a single page in the Page Size field on the bottom. You can increase or decrease the number of entries to view, using the up and down arrows. · Page Navigation To navigate easily, use the First Page , Previous Page , Next Page or Last Page  buttons in the View bar. To navigate to the desired page, type a different page number in the View bar control and press Enter.

Portfolio

A portfolio is a group of financial instruments bundled together. It gives business users the flexibility to analyze a group of instruments together, which results in better business decisions. This section discusses the procedure for defining and maintaining a Portfolio.

A portfolio is the base for any evaluations performed in MRMM. For example, in Instrument Valuation, all the analysis that are performed are at the granularity of the portfolio. Portfolio definition functionality provides flexibility to create a portfolio based on positions, dimensions, or trading desks. The business hierarchy provides flexibility to cut across any supported hierarchy and create a desired portfolio for further analysis. Alternatively, MRMM also provides the option to select individual instruments and create a portfolio. The options provide a wider view of analysis using various dimensions.

You can define a portfolio to specify the criteria for portfolio identification of on and off-balance sheet exposures. This will be available to calculate risk measures for portfolio-level analysis. Portfolio defined in this section will be used in the analysis of instrument valuations and portfolio valuations.

Topics:

· Navigate to the Portfolio Summary Window

· Search a Portfolio

· Define a Portfolio

· Edit a Portfolio

· Copy a Portfolio

Navigate to the Portfolio Summary Window

From the MRMM Home page, select Market Risk Measurement and Management. Click the Navigation Menu , select Library, and then select Portfolio. In the View drop-down list, select the type of portfolio you want to view. The available options are All, Positions, Dimensions, Trading Desk.

See the Common UI Elements section for details on tasks such as view, search, copy, delete, export, approve, reject, and page view options.

Figure 5: Portfolio Summary Window

View and Search for a Portfolio

In the Portfolio Summary window, follow these steps:

Figure 6: Portfolio Summary - View Drop-down List

1. In the View drop-down list, select the type of portfolio. The available options are All, Positions, Dimensions, and Trading Desk.

2. Select the Portfolio you want to view and click the portfolio name. The Portfolio Definition window opens and displays the details of the selected Portfolio. You cannot edit any details in view mode.

3. In the Search field, type the first few letters of the portfolio that you want to search. The summaries whose names consist of your search string are displayed in a tabular format.

· In the Portfolio Name column, click the name of the portfolio you want to view. If there are multiple results for your search, try refining the search string by providing the exact names of the portfolio.

· Use the page navigation buttons at the bottom of the table for multiple search results.

· From the breadcrumb on top, click the Portfolio Summary link to return to the summary window after viewing details of the portfolio.

Define a Portfolio

Portfolios can be created based on multiple filters, represented as portfolio type. You can define a portfolio based on Positions, Dimensions, or Trading Desk. The portfolios created in this window are used for computations in the MRMM Instrument Valuation module.

In the Portfolio Summary window, click Add  to create a new portfolio. The Portfolio Definition window is displayed.

Define a Portfolio – Based on Positions

To define a new Portfolio based on Positions, follow these steps:

1. In the Portfolio Definition window, populate the details mentioned in the following table. Fields marked in red asterisk (*) are mandatory.

Table 5: Portfolio Definition Based on Position - Fields and Descriptions
Fields	Description
Name*	Enter the portfolio name.
Description	Enter a short description of the portfolio.
Folder	Select the folder in which you want to save the definition.
Access Type*	Specify whether the Portfolio is Read-Only/ Read-Write.
Version	Displays the workflow version.
Portfolio Type	Select Position. In this option, the portfolio can be defined at a most granular level based on trades or positions. This indicates that specific positions can be selected and defined as a part of the portfolio definition- these positions can be selected by applying filters such as Instrument type, currency, and so on.
Available Positions	Displays the available positions.
Selected Positions	Displays the selected positions.
Filters	If you have selected the Available Position option, then you will be provided with filters such as Instrument Type, Entity Name, Counterparty Name, Currency.

2. Select Positions in Portfolio Type.

Figure 7: Portfolio Definition Window - Position

3. Click Filter  to add the required Available Positions for Instrument Type, Entity Name, Counterparty Name, or Currency, and click Apply . The application allows multiple selections for this section. The filtered positions are listed in the Available Positions section. Click Reset  to refresh the list. You can sort the columns in ascending or descending order, using the sorter .

4. You can select multiple entries using Ctrl + Click to group the required entries in the Available Positions and click Add . These selected entries from Available Positions are added in the Selected Position section.

5. If you want to remove any entry from the Selected Position, select the entry and click Remove .

6. Click Submit  to save and submit the portfolio for approval. A confirmation dialog box is displayed.

Or,

Click Save  to update the portfolio before submitting it for approval.

7. Click OK. You can now view the Portfolio in the Portfolio Summary window.

Define a Portfolio – Based on Dimensions

To define a new Portfolio based on dimensions, follow these steps:

1. In the Portfolio Definition window, populate the details mentioned in the following table. Fields marked in red asterisk (*) are mandatory.

Table 6: Portfolio Definition Based on Dimensions - Fields and Descriptions
Fields	Description
Name*	Enter the portfolio name.
Description	Enter a short description of the portfolio.
Folder	Select the folder in which you want to save the definition.
Access Type*	Specify whether the Portfolio is Read-Only/Read-Write.
Version	Displays the workflow version.
Portfolio Type	Select Dimension. In this option, the portfolio can be defined based on a more aggregate level as compared to the position type. You can apply filters based on dimensions such as Country, Market Risk Asset class, and so on.
Available Hierarchies	Displays the available hierarchies.
Selected Hierarchies	Displays the selected hierarchies.

2. Select Dimensions in Portfolio Type.

Figure 8: Portfolio Definition Window - Dimension

3. To select one value, select the value and click Move , to select all the Available Values, click Move All . To remove any selected value from the list, select the value and click Remove . To remove all the selected values, click Remove All .

4. Click Submit  to save and submit the portfolio for approval. A confirmation dialog box is displayed.

Or,

Click Save  to update the portfolio before submitting it for approval.

5. Click OK. You can now view the Portfolio in the Portfolio Summary window.

Define a Portfolio – Based on Trading Desk

To define a new Portfolio based on the trading desk, follow these steps:

1. In the Portfolio Definition window, populate the details mentioned in the following table. Fields marked in red asterisk (*) are mandatory.

Table 7: Portfolio Definition Based on Trading Desk - Fields and Descriptions
Fields	Description
Name*	Enter the portfolio name.
Description	Enter a short description of the portfolio.
Folder	Select the folder in which you want to save the definition.
Access Type*	Specify whether the Portfolio is Read-Only/ Read-Write.
Version	Displays the workflow version.
Portfolio Type	Select Trading Desk. This option allows a trading desk to be represented as a separate portfolio.
Trading Desk	Displays the available trading desk information. Select the required trading desk from the drop-down list.

2. Select Trading Desk in Portfolio Type.

Figure 9: Portfolio Definition Window – Trading Desk

3. Enter details in the fields Name and Description.

4. Select a Trading Desk from the drop-down list.

5. Click Submit  to save and submit the portfolio for approval. A confirmation dialog box is displayed.

Or,

Click Save  to update the portfolio before submitting it for approval.

6. Click OK. You can now view the Portfolio in the Portfolio Summary window.

Edit a Portfolio

You can edit a portfolio at any point from the Portfolio Summary window. To edit an existing portfolio, follow these steps:

1. Click the Portfolio Name you want to edit.

2. Click Edit  and modify the required fields.

3. Click Save . The updated information can be viewed in the Portfolio Summary page.

NOTE:

You can edit the portfolio in the draft stage only.

Copy a Portfolio

You can copy a portfolio at any given point from the Portfolio Summary window. To copy an existing portfolio, follow these steps:

1. Select the Portfolio Name and click Copy . The Copy Dialog box is displayed.

2. Assign a new Portfolio Name and edit the Description field if required.

3. You cannot modify the fields Access Type and Folder.

Figure 10: Copy a Portfolio – Dialog Box

4. Click OK. You can view the created copy in the Portfolio Summary window.

Risk Factor

This window displays the preseeded risk factors in OFS MRMM. It is a repository of various risk factors covering the market data elements that are used for the pricing of different financial instruments of the bank.

In Release 8.1, this window is enhanced to include the columns for the modellable and non-modellable Risk Factor Eligibility Test (RFET) under FRTB.

Navigate to the Risk Factor Window

From the MRMM Home page, select Market Risk Measurement and Management, click the Navigation Menu , select Library, and then select Risk Factor.

See the Common UI Elements section for details on tasks such as view, search, copy, delete, export, approve, reject, and page view options.

Figure 11: Risk Factor Page

Define a Risk Factor

To define a new Risk Factor, follow these steps:

1. In the Risk Factor window, for every risk factor you want to test for RFET, populate the required details mentioned in the following table.

Table 8: Risk Factor Window - Columns and Descriptions
Columns	Description
Risk Factor	Displays the risk factor name.
Business Name	Assign a business name to the risk factor.
Risk Factor Category	Displays the preseeded risk factor categories.
Regulatory Risk class	Select the regulatory risk class for the risk factor.
Regulatory Risk Factor	Select the check box if the risk factor is regulatory in nature.
Asset Class	Select the asset class from the drop-down list.
Derivation Approach	Select the derivation approach as Download.
Use for RFET	Select the check box if the risk factor is to be used for RFET.
Real Price Approach	Specify the approach for real price computation. Select Download or Bucket from the drop-down list.
Bucket Definition for Real Price	Select the bucket definition to be used for real price computation from the drop-down list.
Bucket	Select the bucket from the drop-down list.
Use for VaR Calibration	Select the check box if the risk factor is to be used for VaR Calibration.
Value	This is the value generated after executing the risk factor.
Real Price Indicator	This is the value generated after executing the risk factor.
Audit Trail	Click the Filter to view details such as Approved By, Approved On, Added On, and Approval Status.

2. Click Submit  to save and submit the risk factor for approval. After a risk factor is submitted, it cannot be edited until it is approved or rejected. A confirmation dialog box is displayed.

Or,

Click Save to update the risk factor before submitting it for approval.

3. Click OK. The risk factor created in this module is used for RFET computations in the RFET window.

Approve or Reject a Risk Factor

To approve or reject a risk factor, follow these steps:

1. In the Risk Factor window, submit the risk factor for approval.

2. Click Approve or Reject .The respective message is displayed.

3. Click OK.

Execute a Risk Factor

To execute a risk factor, follow these steps:

1. Select the risk factor and click Execute .

2. Specify a date in the Date editor.

Figure 12: Executing a Risk Factor - Date editor

3. Click OK. A confirmation dialog box is displayed.

4. Click OK. The risk factor is executed successfully.

RFET

A risk factor is referred to as modellable when the price of the risk factor is real and is continuously available. All the risk factors must be classified into modellable and non-modellable.

As part of the FRTB regulations, every risk factor the bank or financial institution wants to get through has to go undergo checks for Real Price (RP) and Risk Factor Eligibility Test (RFET). After Identifying the data sourced from the data provider, the bank transactions, and committed quotes against the selected risk factors banks must perform an RFET and calculate if the value is real price.

RFET analysis aims to find if a risk factor has enough data points in a year. Banks or Financial institutions must identify at least 24 real price observations for the risk factor for the observation period. Additionally, over the historical period there must not be a 90-day period in which fewer than four real price observations have been identified for the risk factor. The preceding criteria must be monitored on a monthly basis; or the bank must identify at least 100 real price observations over the selected historical period for the risk factor. The results of the RFET test enables you to find out if the outcome is modellable or non-modellable.

Rules are set for the risk factors before proceeding for the identification of the modellable risk factors. After the configuration of rules, modellable or non-modellable classification is performed.

Real Price can be identified as follows:

· Download: In the download approach, you must specify the real price as per the download value and as part of the market data, specify the Real Price indicator as Yes or No.

· Bucket: In the bucket approach, you must obtain all the instruments associated with a bucket and perform the following validation. If any one instrument passes the following criteria then mark the risk factor price as Real Price.

The RP value is computed as Yes for each risk factor if the following conditions are met:

Table 9: Identification of Real Price for Each Risk Factor
Vendor Certified	Arms Length Transaction	Committed Quote	Transaction of Same Instrument	Real Price
Yes	Yes	Yes	NA	Yes
No	Yes	No	NA	Yes
No	No	Yes	NA	Yes
No	No	No	Obtain all the transactions performed for the instrument on a specific business day. If any of the transaction price matches with the instrument price, then the risk factor is marked as Real Price.

The flag for Modellable is computed with values as Yes or No. Risk Factor is identified as Modellable if Real Price is Yes and Continuously Available is Yes.

Navigate to the RFET Window

From the MRMM Home page, select Market Risk Measurement and Management, click Navigation Menu , select Library, and then select RFET.

See the section Common UI Elements, for details on tasks such as view, search, copy, delete, export, approve, reject, and page view options.

Figure 13: RFET Page

RFET Test

In this window you can identify risk factors as modellable or non-modellable.

To test a risk factor for RFET, follow these steps:

1. In the RFET window, the required details mentioned in the following table are populated.

Table 10: RFET Window - Columns and Descriptions
Columns	Description
Risk Factor	Displays the risk factor name.
Business Name	Displays the business name assigned to the risk factor.
Asset Class	Displays the asset class of the risk factor.
Regulatory Risk class	Displays the regulatory risk class of the risk factor.
Idiosyncratic	Displays if the risk factor is idiosyncratic. You can modify this field.
Model-able	Displays if the risk factor is modellable or non-modellable. After execution, you can modify this field and mention the justification in the Justification field.
Approved By	Displays the approver of the risk factor.
Last Run result	Displays the result after the last execution.
Change	Displays whether the result of the RFET was modified after the last run execution.
Edited	Displays the modification made to the result of the RFET after the last run execution.
Justification	If you change the status of the RFET, justify the reason in this field.
Status	Displays the execution status.

2. Select the RFET and click Execute .

3. Click Calendar to select a date from the Date editor window. In the Select Start Date Unit field, specify the number of historical days to be considered for the RFET execution.

Figure 14: RFET Execution – Date Editor

4. Click OK. A confirmation dialog box is displayed.

5. Click OK to confirm.

6. Click Submit  to save and submit the RFET for approval. After an RFET is submitted, it cannot be edited until it is approved or rejected. A confirmation dialog box is displayed.

Or,

Click Save to update the RFET before submitting it for approval.

7. Click OK.

Edit an RFET

To edit an existing RFET, follow these steps:

1. Double-click the risk factor you want to edit from the RFET window. The fields become editable.

2. In the columns Change, Edited, and Justification, mention the relevant details.

3. Click Submit .

Approve or Reject an RFET

To approve or reject an RFET, follow these steps:

1. In the RFET window, submit the RFET for approval.

2. Click Approve or Reject .The respective message is displayed.

Execute an RFET

To execute an RFET, follow these steps:

1. Select the RFET and click Execute

2. Click Calendar to select a date from the Date editor window. In the Select Start Date Unit field, specify the number of historical days to be considered for the RFET execution.

Figure 15: RFET Execution – Date Editor

3. Click OK. A confirmation dialog box is displayed.

4. Click OK to confirm.

Stress Scenario

OFS MRMM uses a variety of market data such as Rate, Price, Curve, and Volatility to perform Instrument and Portfolio level risk analysis.

A scenario is a set of changes that can be applied to a base market. Current market data can be used for business as usual analysis. However, to perform What-if analysis and other scenario analysis modified market data is required. Market Scenarios section in the MRMM application enables you to define market data under multiple scenarios, which can be further used to perform valuations.

Navigate to the Stress Scenario Summary Window

From the MRMM Home page, select Market Risk Measurement and Management, click Navigation Menu , select Library, and then select Stress Scenario.

In the Stress Scenario Summary window, click Add  to create a new stress scenario. The Stress Scenario Definition window is displayed. See the Common UI Elements section, for details on tasks such as view, search, copy, delete, export, approve, reject, and page view options.

Figure 16: Stress Scenario Summary Window

Define a Stress Scenario

You can define a new scenario in the Stress Scenario Definition window.

Figure 17: Stress Scenario Definition Window

To define a new stress scenario, follow these steps:

1. In the Stress Scenario Definition window populate the details mentioned in the following table. Fields marked in red asterisk (*) are mandatory.

Table 11: Stress Scenario Definition Window - Fields and Descriptions
Fields	Description
Name*	Enter the stress scenario name.
Description	Enter a short description for the stress scenario
Folder	Select the folder in which you want to save the scenario.
Access Type*	Specify whether the scenario is Read-Only/Read-Write
Version	Displays the workflow version.

2. Click Add , and select the Asset Class, Risk Factor, and Business Name from the drop-down list. If the risk factor has been assigned a business name, it is displayed.

3. Select the Shock Type and assign a Shock Value. For details, see Shock Definition Parameters. You can create multiple shocks in a scenario.

4. Click Delete to delete any entry from the table.

5. Click Save. A confirmation dialog box is displayed.

6. Click OK. The Scenario is defined and displayed in the summary page.

Shock Definition Parameters

Shock can be defined at the level of risk factor, market data, and market quotes. You need to select the risk factors based on which the shock needs to be defined. You can select multiple risk factors and define unique scenarios.

The shocks defined above are used to revalue the portfolio subjected to stress using the perturbed values. For example, if the scenario consists of all risk factors relevant to a yield curve for a specific currency type, the instruments for which these risk factors are mapped for pricing will be revalued with the perturbed values.

For example, if the shock value for IR-USD-LIBOR-3M is 1% and that for IR-USD-LIBOR-6M is 2%.for a particular stress scenario definition. In this case a three-month term point will be shocked by 1% and six month risk factor curve will be shocked by 2%.

Type of Shocks

Shock types are defined as a set of additive and multiplicative operations. It results in either an increase or decrease of the base market quotes. Shock can be defined as Percent, Basis Points, or Absolute Value.

Shock in Terms of Percent

In this scenario the shock value is defined in terms of percent. For example: 1%, -2% and so on. This is applicable to all the risk factors.

Following are a few examples:

· Example 1:

If the Base quote = 2 and the Shock value = - 2%

Modified quote = 2 * [1 + (-2%)] = 1.96

· Example 2:

If the Base quote = 2 and the Shock value = 1%

Modified quote = 2 * [1 + (1%)] = 2.02

Shock in Terms of Basis Points

In this scenario the shock value is defined in terms of Basis Points (BP). For example, 1 BP up, 5 BP down and so on. This is applicable to risk factors expressed in terms of rate such as Interest Rate, Swap Rate, and Forward Rate Agreement (FRA) Rate, and so on. Following are a few examples:

· Example 1:

If the Base quote = 2 and the Shock value = - 5 BP

Modified quote = 2 + (-0.05) = 1.95

· Example 2:

If the Base quote = 2 and the Shock value = 4 BP

Modified quote = 2 + 0.04 = 2.04

Shock in Terms of Absolute Value

In this scenario the shock value is defined in absolute terms. For example, USD 10 up, GBP 5 down and so on. This is applicable to risk factors expressed in terms of price such as Equity Spot Price, Index, Futures, Bond Price, and so on. Following are a few examples:

· Example 1:

If the Base quote = 112 and the Shock value = 5

Modified quote = 112 + 5 = 117

· Example 2:

If the Base quote = 112 and the Shock value = - 8

Modified quote = 112 + (- 8) = 94

Pricing Policy

Pricing policy enables you to select models and methods to be used for pricing the instrument. On this page, you can define the pricing policies to be used for instrument pricing.

The Define option allows you to select the models and methods at the granularity level of Instrument Type and Currency. The pricing policy of an instrument can be defined based on the instruments considered for valuation. You can select the models and methods for the corresponding Instrument type and Currency.

Navigate to the Pricing Policy Summary Window

From the MRMM Home page, select Market Risk Measurement and Management, click Navigation Menu , select Library, and then select Pricing Policy.

In the Pricing Policy Summary window, click Add  to create a new pricing policy. The Pricing Policy Definition window is displayed. See the Common UI Elements section for details on tasks such as view, search, copy, delete, export, approve, reject, and page view options.

Figure 18: Pricing Policy Summary Window

Define a Pricing Policy

You can define a new Pricing Policy in the Pricing Policy Definition window.

Figure 19: Pricing Policy Definition Window

To define a pricing policy, follow these steps:

1. In the Pricing Policy Definition window populate the details mentioned in the following table. Fields marked in red asterisk (*) are mandatory.

Table 12: Pricing Policy Definition – Fields and Descriptions
Fields	Description
Name*	Enter the pricing policy name.
Description	Enter a short description for the pricing policy.
Folder	Select the folder in which you want to save the policy.
Access Type*	Specify whether the policy is Read-Only/Read-Write.
Version	Displays the workflow version.

2. Click Add , and select the Instrument Type, Currency, Source, Model Name, and Method Name. You can create multiple entries in a pricing policy.

NOTE:

Release 8.1 supports only Numerix as the Source.

3. Click  to delete any entry from the table.

4. Click Save . A confirmation dialog box is displayed.

5. Click OK. The pricing policy is defined and displayed in the Pricing Policy Summary window.

Bucket Definition

FRTB guidelines allow the banks to define risk buckets based on the group of risk factors with similar characteristics. A bucket can be defined as a set of risk factors that are grouped together by common characteristics.

Navigate to the Bucket Summary Window

From the MRMM Home page, select Market Risk Measurement and Management, click Navigation Menu , select Library, and then select Bucket Definition.

In the Bucket Summary window, click Add  to create a new bucket definition. The Bucket Definition window is displayed. See the Common UI Elements section for details on tasks such as view, search, copy, delete, export, approve, reject, and page view options.

Figure 20: Bucket Summary Window

Define a Bucket

You can define a new bucket in the Bucket Definition window.

Figure 21: Bucket Definition Window

To define a new bucket, follow these steps:

1. In the Bucket Definition window, populate the details mentioned in the following table. Fields marked in red asterisk (*) are mandatory.

Table 13: Bucket Definition: Fields and Descriptions
Fields	Description
Name*	Enter the bucket name.
Description	Enter a short description for the bucket.
Folder	Select the folder in which you want to save the bucket.
Access Type*	Specify whether the bucket is Read-Only/Read-Write.
Version	Displays the workflow version.

2. Select the Asset Class from the drop-down list.

3. Click Add , and specify details for fields Bucket Start and Bucket End. Enter numeric values in these fields.

4. Specify the Bucket Unit in terms of Day, Month, or Year. Select the relevant option from the drop-down list.

5. Click Filter  to add instruments in the List of Instruments column. All the instruments that the bank has exposure such as Bonds, Equity, and so on, must be added here. The List of Instruments column is updated after the Bucket definition is saved.

The following window is displayed. You can create multiple entries in a definition.

Figure 22: Add Instruments in the Bucket Definition

6. Specify the Instrument Type and Currency and click Search. The results get listed in the columns Instrument Code, Instrument Name, Instrument Type Code, Instrument Type Desc, Counterparty Name, and Currency Code. Click OK.

7. The Approved List column is updated after the bucket definition is approved.

8. Click Submit  to save and submit the bucket for approval. A confirmation dialog box is displayed.

Or,

Click Save  to update the bucket before submitting it for approval. A confirmation dialog box is displayed. After Save the Bucket Start, Bucket End and Bucket Unit fields become uneditable.

9. Click OK. The bucket is defined and displayed in the summary page.

Approve or Reject a Bucket Definition

To approve or reject a bucket definition, follow these steps:

1. Select the bucket definition from the Bucket Definition Summary window. The Bucket Definition window is displayed.

2. Click Edit .

3. Click Approve or Reject .

The respective message is displayed. Approved bucket definitions cannot be edited.

Hybrid Model

Hybrid model is a combination of models used to price multi-asset class deals. The Monte Carlo technique used for Counterparty Risk calculation requires a global hybrid model to be constructed and used for the exposure calculation of each trade. The hybrid model is composed of a set of component models, for which parameters, correlation values, and calibration strategies must be defined.

Rule within a hybrid model defines a pattern that is used to match the name of the underlyings specified by the trades. If a rule’s pattern matches the name of an underlying, other attributes in the Rule element specify what type of model should be generated, and the parameters for that (such as calibration strategy, and primary or secondary selection). Multiple rules can match an underlying, since the same underlying can require multiple factor models.

Navigate to the Hybrid Model Window

From the MRMM Home page, select Market Risk Measurement and Management, click Navigation Menu , select Library, and then select Hybrid Model.

Adding a Hybrid Model

This section details the procedure for adding a hybrid model. The following table describes the fields in the Hybrid Model window:

To add a hybrid model, follow the below steps:

1. Navigate to the Hybrid Model window.

Figure 23 Hybrid Model Definition Screen

2. Click Add . A new model is created.

Figure 24 Hybrid Model Add

3. Select the new model. It is added in the definition pane. Populate the relevant details in the fields.

Table 14 Fields and their Descriptions in Hybrid Model Pane

Fields	Description
Fields marked in red asterisk(*) are mandatory
Name*	The Hybrid Model name is displayed.
Quote Type	Correlation factors are found by looking in the market data, and this element notes how to form the full key of those correctly factor quote keys. Select any one value from available list – ASK, BID, FIX, LAST, MID Select the Quote Type from the drop-down list.
Version*	Displays the workflow version.
Workflow Status	Displays the status of the workflow.

4. Click Add Rules . The Add Rule Window is displayed.

Figure 25 Add Rule Window

5. Follow these steps:

a. Select the Pattern from the drop-down list. It defines a pattern with positional strings that is used to match the name of an underlying. This determines if the rule is applicable for a specific trade’s underlying. If the pattern matches, the rule is used to generate one or more factor models in the output hybrid model setup. For example, "IR.<Currency>" will match any underlying with the pattern that it starts with the string "IR." and ends with some currency string. The positional strings are set with the specified name (or names), and will be substituted in the value of other attributes of the rule. Based on the selected Pattern, the fields are displayed. Enter the relevant details in the fields. The below table lists the mapping between pattern and fields displayed:

Table 15 Fields and their Descriptions in Add Rules Window
Pattern	Fields	Description
Common fields	Number Factor	The number of factors for the underlying component model, if it can be configured with multiple factors. Specify the Num Factor.
	Priority	It indicates the priority that is used when two or more pattern match the name of an underlying. Specify the Priority.
	Model ID	This field indicates the ID string of the model to be created for the single-factor model. It can refer to positional strings found when the Pattern was matched. For example, “IR.MODEL.HW1F.<Currency>" will be the string "IR.MODEL.HW1F.USD" if the previous example’s Pattern matched the underlying "IR.USD". Select the Model ID from the drop-down list.
	Is Primary	Set this to "true" or "false" to indicate if the generated model is a primary or secondary one. Secondary models are separate from other secondary models, and are only correlated with the primary models. Check the Is Primary check box, if applicable.
	Calibration Script	A Numerix Extension Library (NXEL) script function to call to generate the calibration instruments for the model
IR.Currency	Currency	Select the Currency.
FX.<Basecurrency>/<Termcurrency>	Base Currency	Select the Base Currency.
	Term Currency	Select the Term Currency.
CR.<Currency>-<ReferenceEntity>_<DebtType>_<RestructuringClause>	Currency	Select the Currency.
	Debt Type	Select the Debt Type.
	Reference Entity	Select the Reference Entity.
	Restructuring Clause	Select the Restructuring Clause.
EQ.<Currency>-<Exchange>-<Ticker>	Currency	Select the Currency.
	Exchange	Select the Exchange.
	Ticker	Select the Ticker.
CMDTY.<Currency>-<Exchange>-<Ticker>	Currency	Select the Currency.
	Exchange	Select the Exchange.
	Ticker	Select the Ticker.
CPI.<Currency>-<InflationIndex>	Currency	Select the Currency.
	Inflation Index	Select the Inflation Index.
RR.<Currency>-<InflationIndex>	Currency	Select the Currency.
	Inflation Index	Select the Inflation Index.

b. Click Save.

6. Click Generate XML. A message XML generation is Successful is displayed. This file is used while defining a business definition in Monte-Carlo simulation user interface, Hybrid Model Name field.

Edit a Hybrid Rule

You can edit all the fields in an XML if it is not used in any business definition.

Delete a Hybrid Rule

You can delete XMLs which are not used in any business definition.