TransRisk - A Market Risk Management Software Solution

TransRisk FAQ's

VaR & Risk Management
1. What is Value-at-Risk (VaR)?
2. Why should I quantify risk?
3. What is basis risk?
4. Is VaR a backward looking measure or a prospective measure?
5. What are the various methods for calculating VaR and which method is most suitable for my industry/ commodity?
6. What kind of businesses / companies use VaR in the industry?
7. If I am doing a back to back business (i.e., forward selling followed by forward/physical purchase) do I need to have a risk quantification mechanism?
8. What is the difference between the exchange margining system and the VaR you provide?

TransRisk and Risk Management
9. What is the data that goes into the system to calculate VaR?
10. Can I calculate VaR using excel? If yes, why do I require software?
11. Do I need to have a risk manager / analyst to use and maintain the system?
12. Does TransRisk address all the risks like credit risk, currency risk, price risk, basis risk, liquidity risk, event risk etc?
13. What kind of controls can the top management impose on the trading operations using TransRisk?
14. How are VaR based risk limits better than the traditional Quantity / Cash loss limits?
15. Can I do back testing and stress testing in TransRisk?
16. Does TransRisk suggest traders on what position to take?
17. Can I simulate the risk before taking positions?

TransRisk Technical Details
18. Can we integrate the risk system with our existing ERP or trading software?
19. What is the customization that is possible on the software and what are the timelines for customization?
20. What should be my investment on hardware and software licensing?
21. What if I don’t want to invest a high amount as a capital expenditure?
22. What is SaaS model? How does it work?
23. What is the security for my exposure data in Saas model?
24. What are the technical specifications of your system?
25. What kind of technical security features that your system will have?
26. What is the technical and functional support that we would get from TransGraph?

Explore more...

 

Testimonials

“ I am writing to extend my thanks for the research and price forecasting services provided to us on a daily basis by Transgraph. The reports and information whether they are emailed to us daily or sourced via your website portal, are a consistent and reliable source of quality information. Our industry is one where information and its dissemination can help in differentiating between suppliers."

- Scott Yarwood, Sr. Regional Sales Manager, ADM Trading (UK) Ltd.



“ This is to state our appreciation for Transgraph for continuously delivering on its mandate to provide updated and insightful consulting services in the area of commodities and ingredients. I would also like to thank your team that is always in touch with buyers and feeds in relevant information that has been many times useful in decision making. In nutshell, the engagement with Transgraph has been enriching."

- V. Sridhar, Sector Manager, Commodities & Ingredients, Cadbury India Ltd.



“ By helping simulate the risk scenarios beforehand, TransRisk has added immense value to our trading decision making process at the operating level. The scenarios are comprehensive because one is able to view the basis and rollover risks associated with the hedged positions too. TransRisk also serves as good Dashboard for the top management, as it gives exposures, P&L, associated risk, limits all at one place.”

- S Sivakumar, CEO, Agri Business, ITC Limited



“ At risk framework and imputed risk model of TransRisk are definitely forward looking and will enable us to move away from ‘post mortem’ approach. We can take a business decision of pricing our contracts or purchasing in advance after factoring in a quantifiable and acceptable risk instead of trying to find reasons for the breach of limits."
"A flexible and scalable business intelligence that gives exposures, P&L, associated risk, limits all at one place and this decision support system can be integrated with our existing ERP and will avoid duplication of data entry.”

- Jude Magima, ED – Sourcing and Supply Chain, Dabur India Limited



“ Transgraph has showcased that ‘Risk Management’ is an excellent tool which will help any sourcing organization to deliver in any and even during challenging business scenario. They have succeeded in creating a deeper, specific and relevant input to the automotive sector. Highly recommended, the course was extremely detailed but the faculty made it so easy to understand - Top marks.”

- S.R. Rajan, Vice President-Commercial, TVS Srichakra Limited.


VaR & Risk Management Top
1 . What is Value-at-Risk (VaR)?
Value at Risk (VaR) is a risk quantification tool and is the world-wide standard in effective risk measurement. In simple words, “In the worst case, how much do I stand to lose, tomorrow?”
Definition of VaR
Value at Risk is defined as the expected maximum loss due to unfavorable movement of the underlying market factors that a portfolio may incur over a target time horizon (T) within a given degree of certainty / confidence level selected by the decision maker (generally taken as 95%).
A Portfolio VaR calculated for 1 day holding period with 95% confidence interval is the maximum expected loss that one might make in 95 out of 100 trading sessions.
2. Why should I quantify risk?
Quantifying risk in terms of an absolute number will eliminate subjectivity in the decision making process and the shareholders, board, top management and traders will perceive the same risk.
3. What is basis risk?
Hedging is taken up for mitigating risk arising from price volatility but when the gains and losses from the physical and derivative positions do not offset each other, the very purpose of employing the hedge is defeated. The residual risk that still persists due to the disproportionate change in the spot and derivative prices is called basis risk.
4. Is VaR a backward looking measure or a prospective measure?
Var is the likely loss for tomorrow which is calculated based on tomorrow’s expected volatility and not based on today’s volatility and so VaR is a prospective measure of risk. As defined, VaR at 95% confidence level outlines the maximum expected loss in the 95 out of 100 probable price scenarios.
5. What are the various methods for calculating VaR and which method is most suitable for my industry/ commodity?
Different methodologies are used in estimating VaR depending on the organization’s specific requirements, nature of data, computing power available and technical scalability. The three well-tested methodologies for estimating VaR are:

Methodology Approach
Parametric (Analytic VaR) Estimates VaR based on the historical average return and the volatility of returns by assuming that they are normally distributed. This methodology is suitable for businesses exposed to markets in which returns (Today’s price – yesterday’s price) are not skewed (number of price increases are almost equivalent to number of price falls, over a period of time).
Monte Carlo Simulation Estimates VaR by simulating large number of randomly distributed events based on the statistical characteristics of the portfolio. VaR is the worst generated portfolio return at the given level of confidence. This is a powerful and robust approach and is suitable for businesses exposed to highly volatile markets and carrying exposure in non-linear instruments like options and also for the commodities where there is a dearth of historical data.
Historical Simulation Simple and said to be more convincing, this method estimates VaR by looking at the worst possible historical return at the given level of confidence.
6. What kind of businesses / companies use VaR in the industry?
VaR is a widely accepted global standard for measuring and decomposing risk. VaR methodology was first implemented and published by JP Morgan. Now VaR based Risk Management is being used by the businesses in the Manufacturing, Commodity processing and trading – from Crude Oil extraction to Cashew trading, Financial, Technology and Capital Markets space. VaR approach adds value to any business that is exposed to risk from volatile market price movements.
7. If I am doing a back to back business (i.e., forward selling followed by forward/physical purchase) do I need to have a risk quantification mechanism?
Yes, if there is a basis risk involved between the buy and sell side transactions. The basis risk can arise due to differing delivery schedules of the two legs of transactions, or their exposure to different benchmark markets with different volatilities.
8. What is the difference between the exchange margining system and the VaR you provide?
Exchanges have lately moved to VaR based margining system. TransRisk estimates risk on the total portfolio risk (VaR) and also individual positions. Unlike the Exchange margining system, the risk capital/margin that TransRisk computes takes into account the benefit from the correlation between each and any two assets of the portfolio. Moreover TransRisk considers the physical/cash market positions also for estimating the risk capital.

TransRisk and Risk Management Top
9. What is the data that goes into the system to calculate VaR?
a) Transaction data (buy / sell position data in physical and financial markets)
b) Historical price data of each of the portfolio’s assets
10. Can I calculate VaR using excel? If yes, why do I require software?
Calculation requires a complex algorithm and an expert risk analyst can probably estimate VaR on a given day using an excel sheet. However the process of collecting the position data and running the algorithms and storing the historical results, simulating a risk scenario before taking a position can not be handled by excel. It is observed that, even software developed as excel add-ons failed to address the business requirements of traders / managers who do not have statistical background. TransRisk does the computations quickly and efficiently, has its own data repositories and above all it gives decision enabling Business Intelligence reports – exposure, P&L, risk (VaR), limits, and simulated scenario reports at the same place.
11. Do I need to have a risk manager / analyst to use and maintain the system?
No. With TransRisk, risk quantification is a totally automated process with minimal manual intervention and the reports can be used by any one familiar with the business process of the organization.
12. Does TransRisk address all the risks like credit risk, currency risk, price risk, basis risk, liquidity risk, event risk etc?
TransRisk addresses price risk, basis risk and currency risk. The currency risk takes into account the price fluctuations in your portfolio due to movements in foreign exchange rates.
13. What kind of controls can the top management impose on the trading operations using TransRisk?
TransRisk’s allows users to not only set VaR based risk limits but also sundry limits on M2M Price, Costs, M2M P&Ls, or any user-defined parameter. A breach of any limit generates an alert which will be sent to the senior users of TransRisk. In this way, you can just set-up an automated advance warning and control system to monitor Quantity, M2M P&L, Risk, or any other parameter at the business division / portfolio / position / trader / commodity levels and take suitable corrective / preventive action.
14. How are VaR based risk limits better than the traditional Quantity / Cash loss limits?
A Quantity / Cash loss limit is a “post-mortem” analysis, i.e. you will come to know of the breach only after it has happened. VaR based risk limits, on the other hand, are forward looking and alert the user before the limits are triggered.
15. Can I do back testing and stress testing in TransRisk?
Yes. With back testing, you can assess the accuracy of the VaR model in predicting losses on your positions / portfolio. i.e. for a 95% VaR, the losses on your position should not exceed VaR number by more than 5 out of 100 days. Stress testing will allow you to view the impact of unforeseen catastrophic events on your portfolio value. This can be done by applying the volatilities and correlations during historical stress scenarios like 9/11, market crashes etc. to your current portfolio and seeing the expected losses on your portfolio.
16. Does TransRisk suggest traders on what position to take?
No, this software will not give a price forecast. However, one can do Price Analysis using the integrated Technical Analysis module in the system. Besides, one can make trading / hedging / liquidation decisions based on the pointers generated by the risk analysis module of the system. E.g. by decomposing the portfolio risk you can see the most risky positions in the portfolio and thereby decide on whether the positions have to be liquidated / hedged.
17. Can I simulate the risk before taking positions?
Yes. You can simulate the risk of a portfolio by making some hypothetical changes to the constituents. Various scenarios ranging from increased volatility to slump in prices to build up of huge inventory can be simulated to see their impact on the portfolio risk.

TransRisk Technical Details Top
18. Can we integrate the risk system with our existing ERP or trading software?
Yes. TransGraph Consulting will develop a custom ETL which will let your existing ERP/trading system integrate seamlessly with TransRisk.
19. What is the customization that is possible on the software and what are the timelines for customization?
TransGraph Consulting does a complete analysis of risks that your portfolio is exposed to by executing a thorough business process mapping. Based on the analysis and various requirements, various custom strategies and views are built into the system. The timelines for customizations vary depending upon the exact requirements of the business processes.
20. What should be my investment on hardware and software licensing?
On a SaaS (Software-as-a-Service) model, you only need to have a standard PC and an internet connection to use TransRisk. However, on an installation model, you need to have licenses of SQL Server and Windows 2003. Many organizations already have these licenses, in which case, additional licenses are not required.
21. What if I don’t want to invest a high amount as a capital expenditure?
If you do not prefer capital investment, you can opt for delivery through SaaS model in which TransGraph maintains your position database thus enabling you to save costs.
22. What is SaaS model? How does it work?
In the SaaS model, TransRisk, along with the position and price databases, will be hosted with TransGraph and users can access it via the Internet. Therefore, in this model, the upfront cost of setting up IT infrastructure is nil, and you can save on the database maintenance costs as well.
23. What is the security for my exposure data in Saas model?
At TransGraph, we give top priority to data confidentiality, which is one of the reasons why our clients trust us with their exposure data. Maintaining the same focus on security, TransRisk has been developed with tri-layer protection, viz., the secure VPN, TransRisk user authentication and SQL user authentication to ensure that your exposure data is secure.
24. What are the technical specifications of your system?
  • TransRisk is built on robust ASP.NET 2.0 Framework
  • Back end – SQL Server
  • Advanced web based GUI using AJAX technology
  • Distributed n-tier application
    		•
    25. What kind of technical security features that your system will have?
  • User and Menu level Security
  • Secure position database
  • .NET's Advanced security features
    • 26. What is the technical and functional support that we would get from TransGraph?
    TransGraph will provide the following support:
  • Functional and Technical Training in TransRisk usage and Risk Management
  • Ongoing support in day-to day usage of the system
  • Implementation assistance (in case of TransRisk is being installed at client place).
    		•


    Explore more...

    Offerings

    Press Releases

    TG at Events

    © 2024 TransGraph Consulting Pvt.Ltd, All Rights Reserved.

    Contact Us    |    Site Map    |    Legal Terms    |