The credit valuation adjustment (CVA) has become an integral part of accounting rules and Basel III. The case where the counterparty exposure increases when its credit quality deteriorates is commonly referred as wrong- way risk (WWR). WWR can have a significant impact on CVA, economic capital and collateralised exposures with margins. A robust method is presented to calculate CVA with WWR that is intuitive, easy to implement and computationally efficient. The methodology effectively leverages existing ‘pre- computed’ exposures into a joint market and credit risk portfolio model, which allows the performance of multiple CVA calculations for sensitivities, stress testing and value-at-risk (VaR). It further provides a model risk framework for assessing both general and idiosyncratic WWR, and stress testing both the factors driving correlations as well as the strength of the correlations. The approach is demonstrated through a practical example. While the impact of WWR at the counterparty level can be very significant, the effect of general WWR at the portfolio level may not be as strong for well balanced, large portfolios of derivatives. Furthermore, the standardised charge in Basel III can be significant even when compared against very conservative internal models with WWR.

To download this paper, click here.

“Overcoming the Challenges of Modelling Wrong-Way Risk in CVA” presented by Dan Rosen, CEO of R² Financial Technologies on 4/17 at 4:30pm.

For more information, get the full agenda and to register here.

1. CVA/DVA/FVA: From theory to practice
2. CVA Modelling
3. Funding Modeling
4. Engineering CVA
5. Component interaction
6. Basel III
7. CVA Trading
8. Liquidity Implementation
9. Counterparty Risk Funding

CVA, Counterparty Credit Risk Capital and Basel III, presented by Dr. Dan Rosen, CEO R2 Financial Technologies
Understanding economic capital for counterparty credit risk: market and credit risk in the trading book
Counterparty credit risk capital and Basel III capital rules:

1. The roles of EPE and alpha for CCR capital
2. Capital for CVA risk
3. Differences in Basel capital rules vs best practices
4. The myth of stressed exposures

• *  Challenges of implementing an effective measurement framework for CCR capital and CVA in the aftermath of the crisis and in the context of new Basel III regulation
• *  Defining a practical methodology and joint market and credit risk portfolio model, for CCR capital, CVA, sensitivities, stress testing, and VaR
• *  Modelling of general and specific wrong-way risks CCR capital, CVA and CVA VaR
• *  Model risk framework and stress testing wrong-way risk, including the both the factors driving correlations as well as the strength of the correlations
• *  Practical examples demonstrating the computation of CCR and CVA capital with internal models, the comparison to the standardized charge in Basel III, and the impact of WWR at the counterparty level and the portfolio level

For more information or to register, click here.

Lou Eccleston, President of S&P Capital IQ, said, “The acquisition of this innovative company, led by a talented team of experienced and accomplished financial engineers and technologists, strategically complements S&P Capital IQ’s existing capabilities and will enable us to offer the industry’s strongest cross-asset class portfolio analytics. We will now be able to offer clients an integrated view of market and credit risks across asset classes in a unique solution, which is increasingly important for financial institutions that are looking to manage complex and diverse portfolios across the globe.”

R² Financial Technologies offers multi-asset class portfolio and risk analytics delivered in real-time to business decision makers in the front and middle offices through two software products: NxR², a front-office pricing, portfolio construction, and risk management software; and R² Capital – a middle-office risk and capital management software solution.

Created in 2006, R² Financial Technologies was initially housed and incubated in the Fields Institute for Research in Mathematical Sciences in Toronto, Canada. The R² expert team of more than 30 financial engineers and technology specialists will join S&P Capital IQ.

“We are very excited to be a part of S&P Capital IQ. This will allow us to expand our reach and meet the needs of our fast-growing client base, while we continue to develop new and innovative risk solutions,” said Dan Rosen, CEO of R² Financial Technologies. “We believe that the combination of R² trading, valuations and risk management products with S&P Capital IQ’s multi-asset class data, research and analytics will help us redefine the risk space altogether.”

About R² Financial Technologies

R² Financial Technologies provides advanced risk and scenario-based analytics to traders, portfolio and risk managers for pricing, hedging and capital management across asset classes. Our software leads the industry, providing practical risk intelligence through expertise in multi-asset class portfolio-level analytics, complex credit and structured product risk analytics and sophisticated scenario analytics.

About S&P Capital IQ

S&P Capital IQ, a brand of the McGraw-Hill Companies (NYSE:MHP), is a leading provider of multi-asset class data, research and analytics to institutional investors, investment advisors and wealth managers around the world. We provide a broad suite of capabilities designed to help track performance, generate alpha, identify new trading and investment ideas, and perform risk analysis and mitigation strategies. Through leading desktop solutions such as Capital IQ, Global Credit Portal and MarketScope Advisor desktops; enterprise solutions such as S&P Securities Evaluations, Global Data Solutions, and Compustat; and research offerings including Leveraged Commentary & Data, Global Market Intelligence, and company and funds research, S&P Capital IQ sharpens financial intelligence into the wisdom today’s investors need.

Media Contact

Michael Privitera

S&P Capital IQ Communications

212-438-6679

Michael_privitera@standardandpoors.com

University of Toronto, St. George Campus

Galbraith Building, Room 202
35 St. George Street
Toronto, ON
M5S 1A4

Plenaries, Speakers & Workshops

Plenary Speakers

Professor Alan White (University of Toronto)
Professor Richard Sowers (University of Illinois at Urbana-Champaign)
Dr. Dan Rosen (CEO of R2-Financial Technologies)
Professor Chanaka Edirisinghe (University of Tennessee)
Professor Luis Seco (University of Toronto)

Other Speakers

Professor Marcos Escobar (Ryerson University)
Professor Mark Reesor (University of Western Ontario)
Professor Roy Kwon (University of Toronto)
Dr. Oleksandr Romanko (Algorithmics)
Professor Kyoung-kuk Kim (KAIST)
John Lukovich (Integrated Asset Management)
Professor Jim Liew (New York University)
Tushar Arora (Scotia Bank)
Dr. Zhong Ma (TD Bank)
Domnyck Prasad (OMERS)

To register, click here.

NxR² provides traders, portfolio and risk managers with superior risk, scenario and portfolio analytics for real-time pricing, hedging, and capital management of multi-asset portfolios, including structured finance instruments. The system leverages the full suite of industry-leading pricing models from Numerix (http://www.numerix.com) and allows users to create profiling strategies in real-time, perform advanced risk analyses of their portfolios, and assess the impact of market changes.

CoreLogic data includes property and mortgage information; parcel and geospatial data; credit information; and tax records. RiskModel combines data from the industry’s most comprehensive mortgage databases with the most advanced predictive modeling technologies to forecast the likely future defaults and prepayment behavior of mortgage portfolios as well as individual loans.

These capabilities deliver the ability to analyze non-agency RMBS portfolios, including the use of proprietary prepayment and default assumptions. “We see a real drive for granular, very transparent assumptions in portfolio modeling,” said Dan Rosen, CEO at R². “There is a need to understand the impact these assumptions have on the performance of a real or hypothetical portfolio, or on a specific strategy. The combination of data from CoreLogic and industry expertise with the R² portfolio tools gives users a real edge in the market.”

For more information on NxR², please visit www.r2-financial.com/nxr2.

Media Contacts:

Debbie Williams
+1.508.433.0083
dwilliams@r2-financial.com

About R² Financial Technologies
R² Financial Technologies provides advanced risk and scenario-based analytics to traders, portfolio and risk managers for pricing, hedging and capital management across asset classes. Our software leads the industry, providing practical risk intelligence through expertise in multi-asset class portfolio-level analytics, complex credit and structured product risk analytics and sophisticated scenario analytics. http://www.r2-financial.com.

CORELOGIC and RISKMODEL are registered trademarks owned by CoreLogic, Inc. and/or its subsidiaries.  LOANPERFORMANCE is a common law trademark owned by CoreLogic, Inc. and/or its subsidiaries.  No trademark of CoreLogic shall be used without express written consent of CoreLogic.  All other marks are the property of their respective owners.

About ASF:

ASF 2012 is the largest capital markets conference in the world. Hosted by the American Securitization Forum, the conference attracts the industry’s top professionals. ASF 2012 will build on the success of last year’s conference, with over 4,500 participants expected.

The new release also delivers several new capabilities to end-users:

• OLAP reporting infrastructure engineered to perform trend analysis on risk and cash flow projections.

• Support for exotic foreign exchange and equity derivatives including barrier, digital, range accrual, auto-call, and Asian options.

• New conditional scenario framework enables users to link the performance of portfolios to macro economic variables (such as state of the economy, credit environment, rate environment)

About NxR²

NxR² is a real-time pricing, portfolio construction and risk management application designed to help active trading desks, structurers and risk managers to independently price and analyze the risk in complex portfolios. www.r2-financial.com/nxr2

About R² Financial Technologies
R² Financial Technologies provides advanced risk and scenario-based analytics to traders, portfolio and risk managers for pricing, hedging and capital management across asset classes. Our software leads the industry, providing practical risk intelligence through expertise in multi-asset class portfolio-level analytics, complex credit and structured product risk analytics and sophisticated scenario analytics. For additional information, please visit www.r2-financial.com.

Media Contacts:

Debbie Williams
+1.508.433.0083
dwilliams@r2-financial.com

R2 Financial Technologies Announces New Partnership With Trepp for CMBS Data and Analytics

“We are very excited about the capabilities that Strategy Analyzer provides to NxR² users,” said Benoit Fleury, Head of Financial Engineering and Product Management at R² Financial Technologies. “Portfolio managers have never had a good way to incorporate the impact of leverage in assessing their investment strategies. Decisions had to made with a much less complete picture of the potential return on an investment strategy. The new functionality introduced in NxR² makes it very easy to compare the performance of different investment strategies, considering different market conditions and under specified investment horizons and any variety of leverage assumptions.“

NxR² provides traders, portfolio and risk managers with superior risk, scenario and portfolio analytics for real-time pricing, hedging, and capital management of multi-asset portfolios. NxR2 is inherently multi-asset class, covering all asset classes (equities, fixed income structured finance complex interest rate instruments, equity and credit derivatives).

Contacts:

Debbie Williams
+1.508.433.0083
+1.416.306.6464, ext. 2100
dwilliams@r2-financial.com

Note to Editors:

About R2 Financial Technologies
R2 Financial Technologies provides advanced risk and scenario-based analytics to traders, portfolio and risk managers for pricing, hedging and capital management across asset classes. Our software leads the industry, providing practical risk intelligence through expertise in multi-asset class portfolio-level analytics, complex credit and structured product risk analytics and sophisticated scenario analytics.