Quantitative development and implementation

Challenge

A blue chip investment bank required support for the development of Comprehensive Risk Measure (“CRM”) a new regulatory capital charge on structured synthetic credit assets. The regulator’s requirement had to be interpreted, fulfilled and a solution implemented in a practicable manner. A directly relevant skill set was required as the underlying assets were complex, as was the CRM methodology.

Solution

  • CPRA provided a consultant with on-desk CDO experience, which allowed the client to utilise CPRA’s real world, not academic, understanding of the issues and solutions.
  • The role initially focused on the documentation of methodology but as the consultant’s skill set was made clear to the client it expanded into:
    – Development and determination of the methodology for simulation of correlation credit instruments.
    – Analysis and review of historical market data, including cleaning routines, for simulations.
    – Development of testing framework and suitable test portfolio that fairly represented the client’s
       portfolio risk.
    – Analysis of output of market evolution programs to ensure validity of results and market realism
    – Assessing the drivers of the calculated CRM figure.
    – Support the design and production of the reporting requirements for CRM including diagnostics
       and CRM-explain reports.

Result

The consultant became a key part of the development and implementation team and the methodology successfully received regulator approval.