03 September 2014

Crédit Agricole CIB simplfies risk mamangement with Invivoo

12 May 2014  |  1530 views  |  0 Source: Invivoo

Invivoo's XComponent software solution rationalises, secures and enhances existing IT developments pertaining to certain market-risk calculations by steering them towards real-time capability.

The software suite has already been deployed by French bank Crédit Agricole CIB in order to perform risk calculations that comply with the Basel III banking-industry regulations.

Vincent Hardouin, project manager in the market-risks IT team at Crédit Agricole CIB, explains: "For our entire portfolio, constituting about 700,000 operations — mostly loans to major businesses — we have to calculate the economic capital, meaning the amount of capital stock required to handle any would-be defaults. The software that manages the calculation grid was developed in house. No one questioned its performance, but it did not fit standardisation demands."

For example, if a €100-million loan is made to a major industrial group to fund a project, the bank must be in a position to establish the probability of this group defaulting and the amount of money that would be lost in such an event. The investment bank uses a mathematical model that takes many parameters into account, such as the debtor's business sector, the geographical area involved, the currency being used, etc. It simulates a million possible scenarios to see how its portfolio would behave and, also, to establish the amount of capital stock required.

For every operation and given scenario, the investment bank must assess the operation's value at a given time. This is a legal obligation and the calculations, although very complex, must be performed at least every quarter. This means that calculations cannot be done using a desktop PC, however powerful it may be.

Like all major banking institutions, Crédit Agricole CIB uses a calculation grid, i.e. a tool linking a hundred or so calculation units to one another. The principle is both simple and complex. First of all, a complicated calculation is broken down into elementary calculations: in this case, one scenario for one operation. Subsequently, the elementary calculations are distributed across the grid. Finally, they are consolidated (or, in other words, aggregated) in order to get the final result.

In late 2012, Crédit Agricole CIB decided to entrust its risk-assessment module to TIBCO DataSynapse GridServer®, a grid-computing platform used throughout most of the investment-bank market. Crédit Agricole CIB then asked IT consultants INVIVOO, specialists in TIBCO DataSynapse GridServer®, to integrate the software into their system. When INVIVOO engineers began working on the project, they noticed that the simulation models ordered by users were generating difficult, lengthy developments.

INVIVOO recommended using XComponent, a solution developed by the company's software-publishing division, in order to handle the orchestration of the calculations and facilitate the monitoring of the operations. The INVIVOO team delivered the requested prototype on time, with the incorporated XComponent. TIBCO DataSynapse GridServer® and XComponent were deployed jointly in June 2013.

"The user interface was highly ergonomic, all of the expected tasks were modelled and exception management was already integrated. What really appealed to me was the visual orchestration of the computer code," explains Vincent Hardouin of Crédit Agricole CIB.

The XComponent visual interface provides a graphical overview of operations performed in a computer application. As a result, development work focuses on functionality bricks, rather than scanning thousands of code lines arranged sequentially.

"Calculation-grid operational maintenance became easier. It was then much simpler to modify the orchestration of calculations, since it was sufficient to just add a process and its related exceptions without having to scan thousands of code lines to modify a few. This simplification will help in responding easily to changes in regulations, generating modifications in risk calculations on a regular basis," explains INVIVOO Chairman Guillaume Morel.

In addition, thanks to XComponent, quantitative analysts in charge of modelling risk calculations do not depend on IT in order to check whether a calculation is proceeding normally. "Although it is hard to establish, I believe that code maintainability has improved," says Vincent Hardouin.

By the end of the first half of 2014, XComponent will be used in inserting a new support interface within the application to respond more efficiently in the event of a problem while performing calculations.

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