FRSGlobal to launch VaR backtesting techniques

Source: FRSGlobal

FRSGlobal, a part of Wolters Kluwer Financial Services, a leading worldwide provider of compliance and risk management solutions for the financial services industry, today announced it will be providing advanced Value at Risk (VaR) backtesting techniques within its solutions in Q1 2011.

The in-built backtesting techniques offered by FRSGlobal will allow risk managers to benefit from the application of statistical analysis on profit & loss data compared against VaR measures at configurable confidence levels, holding periods and sample sizes, easing the workload of risk managers and supporting them in model configuration and analysis. This advanced offering will allow banks to integrate backtesting with easy-to-use configurations.

Thomas Brouwer, head of Product Management, FRSGlobal, commented: "Due to flaws in model accuracy and what some describe as "bad luck", VaR measurement lost some credibility during the financial crisis. However, with requirements increasingly demanded by the board, senior management, auditors, regulators, investors and rating agencies, VaR measurement will most certainly be used in the future, but this time with more requirements in backtesting model accuracy."

Brouwer continued: "As risk managers become more accountable for the risk models used, they will no longer be able to say that their VaR models incorporate too many simplifications and assumptions in order to measure the risk appropriately. More and more they will be urged to strive for VaR models that capture risks adequately and backtest models more stringently. We are proud to announce new functionality within our powerful risk solution that will help risk managers to do this."

FRSGlobal's advanced VaR backtesting techniques will help risk managers to better validate model accuracy statistically and to trace exceptions with classified quantitative information along the criteria outlined in Basel Committee framework on backtesting. The incorporation of binomial test statistics into FRSGlobal's advanced VaR backtesting techniques, helps risk managers return the probability of observing the encountered exception at a given confidence level and number of trials. Kupiec test statistics are also built in, which are used to help determine whether the observed frequency of exceptions is consistent with the frequency of expected exceptions according to the VaR model and chosen confidence interval.

FRSGlobal's RiskPro solution covers a broad scope and depth of financial analysis, helping ensure consistency of results and reduction in the costs of analysis, which includes:
• Easy-to-use and highly flexible modular software platform that helps to satisfy the internal and external analysis requirements in financial risk analysis - for small to large organisations;
• Extensive financial product coverage - from saving accounts, complex loans and insurance instruments to exotic options and structured products;
• Experienced and talented implementation and support resources - providing quality services, knowledge-transfer and effective solution implementation, use and support;
• Worldwide accessibility and global delivery capability through local presence and international teams.

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