7        Historical Simulation

VaR Model Name*

Enter the name of the VaR model.

VaR Model Description

Provide a description of the VaR model.

Version

Displays the workflow version of the business definition.

Access Type*

Specify the access type.

Folder

Select the folder.

Portfolio

Select the Portfolio from the drop-down list.

Differential Method

Select the differential method whether Absolute or Relative.

This is the interpolation method used for interpolating missing values in historical data. This parameter indicates how to construct the simulated market from the execution date’s market. You can select Absolute, or Relative. The following formula explains the computation of scenario values under each method.

Where, RF is the risk factor, and t is the number of execution days.

Observation Period

This is the current historical observation period to be considered for the computation of VaR. The current historical period starts from the execution date until the period specified in this column. The observation period is computed relative to the execution date.

Specify the current observation period for computation of VaR, whether Trailing or Dates.

·        Trailing: Specify the number of Historical Days or Months or Years.

·        Dates: Specify the time period between which you want to compute the VaR.  Select the From and To dates by using the Date-Time editor.

Horizon (in Days)

The time horizon over which you can compute the VaR number output.

Specify the horizon in terms of days.

Confidence Interval

Confidence is the percentage value that you need to define the VaR numbers.

Specify the confidence value required for calculating the output.

Reporting Currency*

The currency in which all the output for a given definition will be computed. Select the currency code from the drop-down list.

Output Metrics

Select the list of desired outputs. This section allows you to select the list of desired outputs mentioned below.

The outputs are:

·        ES and VaR:

Select this option to calculate the Expected Shortfall (ES) and Value at Risk (VaR) and Component VaR, using the current observation period.

·        Stress Calibrated for ES:

Select this option to specify the stress window.

If you choose to define the observation period, toggle the Identified Period button and provide the Observation Start Date and Observation End Date.

·        Internally Modelled Capital Charge:

Select this option to specify the relative weight assigned to the firm’s internal model. This output is required to compute Internally Modelled Capital Charge (IMCC).

·        Stress Capital Add-on Charge:

Select this option to set the computation of stress scenario capital charge (SES) with execution.

·        Aggregated Charge:

Select this option to set the computation of Aggregated Charge with execution. Computation of aggregated charge requires a multiplier. A multiplier is the number that is associated with the number of exceptions arrived in Model Validation. Select the business definition defined in the Model Validation module from the drop-down list, to add a multiplier. If not selected, the system will take 1.5 as the default value of the multiplier.

For details on the computations, see Historical Simulation - Output Metrics

Analyze By

You can select the dimensions for analyzing the VaR.

Analyze by functionality enables you to view the VaR outputs at different granularity. For a selected dimension the application creates the tree structure of its nodes and provides the output.

For Example, if you select Instrument Type in Analyze by at the time of Historical simulation run. If a portfolio has three instrument types such as Equity, Equity Forward, and Bonds. Then the application generates VaR numbers at following granularities:

·        VaR at Group level

·        VaR for underlying Account under the Node = “Bonds”

·        VaR for the underlying Equity Forward contracts under the node = ”Equity Forward”

·        VaR for Equity contracts under the node = ”Equity”

To add dimensions, follow these steps:

1.     1.         Select dimensions for analyzing the VaR and ES numbers from the drop-down list.

2.     Click Add . You can add multiple dimensions.

3.     Click Delete to remove a dimension.

Pricing Approach

Select the models and methods to be used for instrument pricing. You can Download or Select a Pricing Policy.

Once you select the Pricing Policy from the drop-down list, the details such as Instrument Type, Currency, Source, Model Name, and Method Name are populated in the table.

Execution Summary

Displays the execution history of the business scenarios. It displays details such as Execution Date, Execution ID, Execution Status, Definition Workflow Status, EOD Execution.

Select the execution to be marked as EOD execution.