Axioma, the leading global provider of enterprise risk management, portfolio construction and regulatory reporting solutions, has launched the next generation of its Axioma RiskTM solution which significantly enhances its Fixed Income and Multi-Asset Risk Models.
These new, bottom-up risk models are constructed using Axioma’s proprietary methodology for modeling global fixed income returns across both developed and emerging markets. This methodology relies on a rigorous, research-based approach that incorporates granular, company-specific data, down to the entity level, in order to produce highly accurate fixed income curves that isolate data signals while reducing data noise.
“Building meaningful derived issuer-specific curves and market surfaces to construct risk models is notoriously difficult,” said Ian Lumb, Axioma’s Head of Risk Solutions. “We have spent years cleansing and organizing the underlying fixed income data to develop a proprietary methodology that solves for the main challenges that exist in other fixed income risk models and incorporated these techniques into Axioma Risk.”
The new methodology for building credit spread curves and duration times spread (DTS) measures allows the Fixed Income and Multi-Asset models, available through Axioma Risk, to provide users with a more granular and accurate view of entity-specific risk. This ensures that risk budgets are measured and monitored accurately, and that exposures from similar sectors or ratings are not all assumed to have the same risk. This enhanced visibility ensures that portfolio managers, risk managers and central risk book owners are able to model all corporate and non-corporate credit risk accurately across their portfolios and to deconstruct portfolio risk at a truly granular level.
“Sub-entities of the same parent company can trade very differently,” explains Christoph Schon, Axioma’s Head of Applied Research, EMEA. “If you treat all entities the same across a given capital structure, then your fixed income risk model may be missing crucial information that can inform your investment process – things like diversification benefits and distressed assets. It is important to be able to identify these elements and to model their impact.”
Through a smoothing process that relies on an internally developed machine learning technique, Axioma Risk will also separate out artificial volatility and reduce data noise.
Other new features of the next generation Axioma Risk Fixed Income and Multi-Asset Risk Models include:
• Decomposition all the way to cashflows
• Market-consistent pricing and analytics
• Granular risk factors that are aligned with investment strategies
• Improved full-revaluation stress tests and risk simulations
• Consistent classifications
As a best-of-breed risk solutions provider, Axioma continually releases new updates to its risk models across both Equities and Fixed income. Existing users will be able to switch seamlessly to the new best-in-class risk model while new users can directly integrate these models into their existing workflow using Axioma’s API-first technology.