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