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Regulatory Compliance & Approval

Regulatory Compliance & Approval

Supporting clients through regulatory approval and review

Combine the best of our risk analytics products with expert consultancy for an all-in-one compliance package

Regulatory complexity has been growing over the last 30 years, in particular as a response to the financial crisis in 2008/2009. For smooth business operations, it’s vital that firms have organizational structures, processes and models in place that withstand regulatory scrutiny. It is equally important from an economic perspective, as fallback solutions can be costly.

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Regulatory Compliance & Approval

Setup & Information

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What is ORE?

In this video, we give an overview
of what is Open-source Risk Engine (ORE):
‍
... more

- How it was created (i.e. its history and original purpose)

- What it is now and who is currently using it- How it can be extended through already existing modules as part of ORE+

- How Acadia can help you expend it in many ways possible for your own purposes and needs through our expert services

- A high-level view on how to install and use it

How to install ORE?

In this video, we explain how to
install and test Open source Risk Engine

... more

How to install and test Open source Risk Engine
(ORE) in Visual Studio 2022 using the package manager vcpkg and CMake as a way to build the library.

We will provide you with step-by-step instructions on:
➭ 00:00 Introduction
➭ 02:11 Chapter 1 - How to download, install & configure vcpkg
➭ 05:10 Chapter 2 - How to download & build ORE
with CMake in VS with the "Open/Folder" option
➭ 10:05 Chapter 3 - How to run one of ORE examples

Files Configuration

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Trades XML Files

In this video, we walk you through
the ORE XML trade detail specification

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In the context of ORE, these XML capture
the individual trade economics for any type
of OTC derivatives instrument.In particular,
we show a few examples of trades and their most common structure:
- Interest Rate Swap
- Equity Swap
- Bond Total Return Swap (TRS)
- Credit Default Swap (CDS)
- FX Forward- Equity Forward
- European Equity Option
- Interest Rate European Swaption
- Index CDS Option
- Equity_Digitial Option
- Equity OneTouch Option
- Equity European Barrier Option
- Cross Currency Swap Amortising

How to change the reporting currency?

In this video we explain how to change
the reporting currency when pricing a trade

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To illustrate how this works, we use data from the video "TA001 - Equity Option with Implied Volatility Surface" which is in EUR, then we configure the inputs files and finally, we add the required market data for a USD collateralization. This involves adding the followings curves in curveconfig.xml and todaysmarket.xml and all the corresponding market data in the marketdata.txt file:
- 1 EUR-USD Cross-Currency Curve
- 1 USD Discounting Curve
- 1 USD Projecting Curve
- 2 new EUR Projecting Curves

General Configuration & Master File

In this video, we explain the general setup
of ORE , how the master file contains
all information regarding the other input files

... more

It is recommended to watch this video when starting to learn about ORE as it gives a good overview of all the files involved when performing any analysis, from simple NPV to more complex CVA (some additional files are needed in this situation though).
There are 3 parts talked about for the master file:
- Setup: This part contains general information about the date of the calculation, the location of the input/outputs files, the verbosity of the log file...
‍
- Markets: This part is useful when a specific market configuration needs to be created
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- Analysis: This part provides information about the type of analysis that needs to be performed

Trades & Analytics

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Interest Rate Swap

In this video, we explain how to setup
ORE to price an interest rate swap.

... more

In particular, we describe the following inputs files:
- Master (or ore.xml)
- Todaysmarket
- Curveconfig
- PricingEngine
- MarketData

Equity Option with Implied Volatility Surface

In this video, we explain how to setup ORE
to price an equity option with implied volatility.

... more

How to set up ORE to calculate the NPV of an equity option with implied volatility surface.
‍This is a good video to watch for beginners as it goes into a bit more detail regarding the connection between all input files than the pricing videos that will be produced next.

Technical Finance

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Specialist Expertise

Solving regulatory compliance

Quaternion Quant Services has supported many clients in their regulatory approval or review. And our experience extends beyond the support we offer our clients in consultancy projects. Acadia is a developer of professional risk analytics software and an ISDA accredited SIMM vendor. As a result, we have gained direct first-hand experience with international regulatory bodies on model approval, model review and model validation. Combining the best of the Acadia Risk suite with our Quant Services experience helps firms to fast-track their compliance programs in an efficient, cost-effective manner.

These are some of the regulatory projects that we have recently undertaken:

  • Preparation of regulatory audit (e.g. TRIM) & findings remediation for Counterparty Credit Risk and Market Risk 
  • Preparation of model validation documentation to SR11-7 standards 
  • Preparation of regulatory approval process for internal Counterparty Credit Risk models and IM models 
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Regulatory Compliance & Approval Case Studies

TRIM Audit support for EU-Headquartered International Commercial Bank

Engagement Goal:

European Central Bank (ECB) Targeted Review of Internal Models (TRIM) audit preparation: Model validation for Counterparty Credit Models used for Capital under the Basel III Internal Model Method.

Project Description:

Quaternion Quant Services was retained by one of the first banks to undergo the ECB’s TRIM audit to provide comprehensive benchmarking, validation gap analysis, bottom-up review and updates to model documentation. The scope covered the Internal Model Method (IMM) models used for counterparty credit risk and included all asset classes. The result for our client was a successful completion of the TRIM audit.

Tier 1 Global Investment Bank - Initial Margin Model Validation

Engagement Goal:

Model Validation of Standardized Initial Margin Model (SIMM) for Federal Reserve and PRA submissions.

Project Description:

Quaternion Quant Services was retained to provide independent quantitative model validation and benchmarking to support a model approval submission for the SIMM model for both Federal Reserve and PRA submission. The work was documented to SR 11-7 standard and the ultimate regulatory submission was successful.

Counterparty Credit model development – Swiss Based International Tier 1 Bank

Engagement Goal:

Renewal and re-approval of Counterparty Credit Models to be used for regulatory capital under the Basel III Internal Model Method and to be used in multiple regulatory regimes.

Project Description:

Quaternion Quant Services was engaged as the lead consulting firm in a long term program to renew and seek approval for a modern, post-crisis suite of CCR IMM models, cross asset class. The resulting models were submitted and gained regulatory approval in multiple EU and non-EU regulatory regimes. The overall program of work involved research, development (including prototyping), documentation and submission assistance for a comprehensive suite of models. The work was done to the SR 11-7 standard mandated by the Federal Reserve bank. The ultimate regulatory submissions have been successful in multiple regulatory regimes.

Risks Not In Model Engine (RNIME) TRIM findings remediation - EU Headquartered International Commercial Bank

Engagement Goal:

Development of a methodology and implementation of algorithms supplementing the existing internal Value-at-Risk (VaR) engine that would provide estimates to the Risks Not In the Model Engine (RNIMEs) of the clients VaR model.

Project Description:

In the context of a TRIM audit, the internal VaR model of the client had received numerous findings with respect to the Risks Not In the Model Engine (RNIME). During the engagement, the Quaternion Quant Services team developed a quantification methodology for all RNIMEs that had been identified and implemented quantification algorithms to estimate the impact on the overall VaR of these risks. A total of 70 identified RNIMEs risks were quantified. Affected asset classes were interest rates, commodity, equities, FX and credit.

Introduction to the Open Source Risk Project

Watch this short video to learn more about the Open Source Risk Project. Roland Lichters, formerly Co-Founder of Quaternion and now Co-Head Quantitative Services at Acadia walks you through ORE's history, project and analytics scope and demonstrates how to get started quickly with ORE.

Check out the ORE Academy for a full library of learning materials to discover all the possibilities within ORE.

Learn more with ORE Academy

Meet our Quant Services team and learn about their expertise

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