These examples demonstrate how the Risk Dashboard can be used to draw conclusions about the risk characteristics of your portfolio. By visualizing historical trends, forward-looking simulations, and granular risk contributions, the user can interact with the data to identify the largest drivers of risk within their portfolio.
The vote on United Kingdom’s referendum to withdraw from the European Union (commonly known as “Brexit”) was decided on June 23rd, 2016 with results officially revealed the following day.
This example shows that “Brexit” had a dramatic effect on portfolio exposure in US dollar (USD) terms. Due to the currency’s depreciation and increased FX volatilities, exposure metrics like Current Exposure (CE), Effective Expected Positive Exposure (EEPE), and Credit Value Adjustment (CVA) increase substantially in USD.
Exposure Profile Analysis
Monte Carlo simulation lies at the heart of the Open Source Risk Engine (ORE).
Ultimately, the Monte Carlo framework provides a set of future (simulated) net present values (NPVs) for the portfolio under randomly-generated market scenarios. ORE then calculates an average of the positive (EPE) and negative (ENE) exposures, as well as a quantile (PFE) of the future positive exposure, and these values are displayed within the Exposure Profile chart of the Risk Dashboard. Careful analysis of these exposure profiles can tell the user much about the trade’s characteristics.