SimCorp Dimension: Axioma bridge (multifactor model) trend

🧊 Today we’ll continue to talk about innovation trends in Risk & Forecasting dedicated modules of SimCorp Dimension, presented during #IUCM2022.

👓 We’ve already considered the following elements in our previous article:

1. Internal risk models (granular model)

2. RiskMetrics bridge (i.e. granular external model)

Therefore, today we’ll focus on the following new item:

🎨 3. Axioma bridge (multifactor external model)

If you look at most Front and Middle office analytics in SimCorp Dimension you would notice that it moves towards the factor based world. Why is that? Why the standard /existing models, tested by years, are not the target trend anymore? Well, the answer is simple the world complexity constantly increases. It might become challenging to predict accurately the Value-at-Risk for certain derivatives, only base on major valuation parameters. Moreover, the multifactor based model provides a possibility to use the correlations with factors that might even not participate in valuation of certain instrument explicitly. After all, have you seen how the portfolio managers optimize their portfolios? Nowadays, they use hundreds of parameters/factors for portfolio optimization. That’s why we see such moves towards multifactor models. Axioma itself provides the fundamental and statistical scientific multifactor models for Value-at-Risk calculation, as well as portfolio optimization solutions. However, you should not underestimate a complexity of such models, taking into account that even the same factor might be defined differently for different instrument segments, pay attention to the time horizon of the factors, their correlations, etc.

Delivered: Proof-of-concept, a possibility to include risk factors correlations within SimCorp Dimension

Expected: model solution release, Web API, enhancements in covariance matrix import

Next time we’ll proceed the final 2 elements in the “Risk & Forecasting innovations trends within SimCorp Dimension system” topic:

4. Solvency regulation (incl. other regulations possibility)

5. Investment forecasting

💡 In the meanwhile, if you have any questions – don’t hesitate to contact Unitso (info@unitso.com) – we’ll be glad to support you with our Dimension expertise.