Improved stress testing in Clara

The Baymarkets team is excited to let you know we are enhancing our stress test capabilities by using inspiring new research for scenario generation and our redesigned GUI for highly flexible operational management.


Stress scenarios


Following the best practices from EMIR, CCP12, EACH et al. stressed scenarios are generated using data from past extreme market events to evaluate the stress loss of the current portfolios. In addition, risk managers are given a flexible tool to define plausible scenarios based on their in-depth experience. Moreover, by using recent research we also offer a way of generating a stressed scenario dependent on a given portfolio. The generated scenarios are defined to be the optimal plausible scenario for each portfolio. We are also exploring the possibility of combining the automatically generated scenarios with manual constraints that utilizes risk managers’ expertise.


Exposure aggregation

Once we have defined a set of scenarios we can apply them to all the portfolios that need to be stress tested. Each scenario/portfolio combination reveals a stress loss.

However, to test the CCP’s resilience towards the losses we need to define some rules on how losses should be aggregated. In order to give risk managers the operational flexibility they need, we have generalized aggregation rules used industry wide to an aggregation framework. This framework covers all rules required by regulators and also lets risk managers define and experiment with their own set of aggregation rules. This way decision makers can be well informed about a wide range of eventualities before drawing any conclusions.


Usage

Baymarkets are in the process of creating a new, slick frontend for the Clara platform. The stress test functionality will be available through the enhanced GUI offering customizability and easy-of-use. Users will be able to define scenarios and aggregation strategies, view in-depth analysis on the stress test results and inspect the CCP’s resilience along its line of defence in each scenario/aggregation combination.


The stress test functionality will be available as a module seamlessly integrated with the Clara platform, or upon request, provided as a stand-alone application server.