Features
With industry-leading product coverage, the Credit Risk for Economic Capital solution enables firms to value their entire portfolio across the enterprise. Additional product types or client-specific models can be implemented through an open application programming interface (API), allowing for maximum customization and flexibility.
Multi-state, multi-step modeling
Multi-state modeling with a proper mark-to-market valuation is used to capture the historically high correlation between delinquencies and charge-offs across all asset classes. Intuitively, the Credit Risk for Economic Capital solution captures the notion that downgrades accompany defaults.
Risk-adjusted performance analysis
Clients can leverage portfolio risk measures to evaluate the success of a given business decision, strategy or employee performance. By systematically integrating portfolio risk concepts into performance evaluation and incentive structures, Algorithmics' Credit Risk for Economic Capital solution can help to integrate risk management into an institution's culture.
Stress testing
The Credit Risk for Economic Capital solution can stress test all risk factors, ranging from an individual factor for sensitivity analysis to a complete set of macroeconomic factors for capital adequacy assessment scenario. The factors that can be stressed include: probability of default (PD) or rating grade, loss given default (LGD), exposures, interest rates, exchange rates, credit spreads, equities, commodities, and correlations (through credit drivers).
Stochastic loss given default
Algorithmics' Credit Risk for Economic Capital solution provides an independent beta distribution, parameterized by its first two moments, to capture fluctuations in LGD. In addition, collateral may be modeled to capture correlations between defaults and collateral values, often approximated by correlating default with LGD.
Modeling flexibility
By providing full support for default/no default and credit migration models, stochastic and deterministic exposures and incremental rollout across businesses, Algorithmics' Credit Risk for Economic Capital solution allows a firm to begin using the product almost immediately and then to increase the model sophistication over time. This helps institutions to select an appropriate model and to communicate the results obtained in the context of the model.