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Roadmap
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Current Scope


The Open Source Risk Project aims at providing a transparent platform for pricing and risk analysis that serves as

  • a benchmarking, validation, training, and teaching reference,
  • an extensible foundation for tailored risk solutions.

On that journey, ORE currently provides portfolio pricing, cash flow generation, and a range of contemporary derivative portfolio analytics. The latter are based on a Monte Carlo simulation framework which yields the evolution of various credit exposure and market risk measures:

  • EE aka EPE (Expected Exposure or Expected Positive Exposure)
  • ENE (Expected Negative Exposure, i.e. the counterparty’s perspective)
  • ’Basel’ exposure measures relevant for regulatory capital charges under internal model methods
  • PFE (Potential Future Exposure at some user defined quantile)
  • Value at Risk and Expected Shortfall

and derivative value adjustments

  • CVA (Credit Value Adjustment)
  • DVA (Debit Value Adjustment)
  • FVA (Funding Value Adjustment)
  • COLVA (Collateral Value Adjustment)
  • MVA (Margin Value Adjustment)

for portfolios with netting, variation and initial margin agreements.

The first release of ORE in October 2016 covers the simulation of interest rate and FX risk factors and portfolios of Interest Rate Swaps, Caps/Floors, Swaptions, FX Forwards, Cross Currency Swaps and FX Options.

 

Roadmap


Quaternion is committed to extend ORE’s scope over a sequence of subsequent releases from Q1 2017 onwards, with respect to both financial products and analytics.

Products

The derivative product and the risk factor range will be built out to cover

  • Inflation
  • Credit,
  • Equity,
  • Commodity

choosing one basic risk factor evolution model in each category. For inflation we are considering Jarrow-Yildirim and Dodgson-Kainth, for credit a simple Gaussian model to start with, for both equity and commodity log-normal models. Our goal is to provide a broad coverage first.

With the introduction of credit risk factors, the scope will also be extended to cover Cash Products (loans and bonds).

Analytics

  • Subsequent ORE releases will also compute regulatory capital charges, e.g.  for counterparty credit risk under the new standardised approach (SA-CCR),
  • the Monte Carlo based market risk measures will be complemented by Parametric VaR methods, e.g. for benchmarking various initial margin calculation models applied in cleared and non-cleared derivatives business,
  • to feed the latter, ORE will include functionality for configurable sensitivity calculation and stress testing,
  • and with the introduction of cash products we intend to also add related portfolio analytics such as building credit portfolio loss distributions

The order in which we contribte these ORE extesions is not fixed yet, and we are interested in the community’s feedback before we make the next steps.