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Market Risk Stress Revaluation

Market Risk Stress Revaluation


The Risk Control function of a Tier 1 Investment bank required expertise in assisting the implementation of a new stress testing methodology to capture more accurate stress scenario valuations. Additionally, in relation to more realistic and granular scenarios, the methodology returned trade level valuations instead of desk level aggregations. CubeMatch represented the Risk Operations Department within Risk Control, providing skilled risk analysis and risk IT consultants to work with other key stakeholder functions.

CubeMatch Deliverables

  • Captured the cross dimensional risk that had previously been ignored in the existing stress methodology 
  • Provided more accurate stress testing methodology
  • Correction of internal limit management and capital requirement charges
  • New valuation error types

CubeMatch Approach

  • Application of a new Stress Testing Methodology to the models directly to assess risk dimension bumps simultaneously
  • Create new reports to categorise and track the progress of error management
  • Definition of effective workflows (one for equities and one for rates)
  • Agree with individual departments how errors should be escalated for resolution
  • Initiate a clean-up of accumulated failed positions
  • Creation of documentation regarding procedures for report generation and error resolution as well as training Risk Operations staff on the new workflow and the reconciliation procedures to the models directly

Benefits Delivered

  • More accurate stress testing 
  • Better solving of risk-methodological issues
  • Error rates sharply declined (within weeks = 95% decline)
  • Defined ownership for resolutions
  • Trading portfolios valued more accurately