Axioma launches global risk models

Source: Axioma

Axioma, a leading global provider of decision support, risk analysis and portfolio rebalancing tools for the financial services industry, today announced the launch of a comprehensive suite of global, regional and country-specific risk models.

Axioma's Robust Risk Models are available for the global market, emerging markets, Europe, the U.S., the U.K. and Japan. The suite includes both fundamental and statistical factor models, with all of the risk-model components updated on a daily basis.

Commenting on the new suite, Sebastian Ceria, PhD, founder and Chief Executive Officer of Axioma, said, "Given the high volatility in today's markets, having daily updates of all risk model components is essential for survival. Additionally, having multiple flavors of risk models in the same platform gives portfolio managers a better understanding of their risk. With Axioma's Robust Risk Models, portfolio managers can understand where risk is coming from, and act accordingly in a timely fashion, breaking away from the beginning-of-the-month herd."

Axioma's innovative suite of global risk models includes a number of key features:

  • Both fundamental and statistical factor models provide multiple views and a better perspective of risk
  • Daily updates of all risk-model components enable users to stay on top of volatile markets
  • Methodological enhancements enable the risk models to adapt quickly to changing risk environments
  • Factor transparency and industry-standard classifications eliminate the "black box" and ensure alignment with investment objectives
  • Models can provide additional views where market risk is attributed to countries or industries enabling different perspectives for a more comprehensive decomposition of risk
  • Format options enable easy integration with any system-all of Axioma's risk models are offered as flat files or in proprietary formats that integrate seamlessly with Axioma products

Ceria emphasized the value of daily risk-model updates. "Quants have been criticized because too many people appear to be deploying similar strategies. That's because too many people are using the same risk model and rebalancing a rebalancing at the same time. Our risk models give clients the power to differentiate their investment strategies by rebalancing at will."

Robert Stubbs, PhD, Vice President, Research, stressed the importance of considering the entire investment process in the design of the models. "We considered everything from risk estimation and decomposition through to portfolio construction and performance attribution. When you think about the process holistically, you realize how critical the risk estimation process is, and you can see that greater explanatory power in the returns model doesn't necessarily translate into a superior risk model. That's why we focused our research on improving risk estimation processes and methodologies. And that's how we built a new methodology that allows our risk models to be more responsive to shifts in volatility, without simply reducing half-life and introducing noisy changes into the estimates."

While Axioma advocates the use of multiple risk models, the issue of comparability is critical. Axioma's fundamental and statistical risk models are built off the same platform, use the same underlying database, and have been built by the same team, thus ensuring comparability.
For clients who prefer to use fundamental models exclusively, Axioma offers significant advantages. Axioma provides transparency into its factor model and uses standard industry classifications, enabling the portfolio manager to obtain a precise view of the sources of risk. In addition, Axioma has developed a proprietary technique to address one of the most common criticisms of risk models: their slowness to adapt to changes in volatility regimes. Axioma's risk predictions adapt to changes in volatility quickly, without adding unnecessary turnover to the portfolios, resulting in estimates that are accurate, timely and stable.

Axioma's new risk models were developed and tested with the input of leading practitioners at firms with upwards of $2 trillion in combined assets under management. The development of the models drew upon the risk model and performance attribution components of Goldman Sachs Asset Management's Portfolio Analytics and Construction Environment (PACE), which Axioma acquired in 2005. PACE provided a solid foundation upon which Axioma developed its own daily risk models.

Axioma's risk models are offered with clear and attractive pricing, including significant economies of scale for clients making use of the models across multiple locations and regions.

The launch of Axioma's global risk models represents a significant expansion of the company's capabilities as provider of a complete suite of solutions for both portfolio construction and risk management.

Olivier d'Assier, President of Axioma Asia and Chief Marketing Officer, said, "Clients know and trust us as a provider of innovative and flexible portfolio-construction tools, and they can now get the same innovation and flexibility in the realm of risk models."

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