Analytics Drives Trading Decisions

Terry Flanagan

Analytics are being incorporated across a range of asset class trading strategies, as firms adopt modeling approaches that can adapt to changing market conditions.

Thomson Reuters and BlackRock have teamed up to offer a derived analytics service created via BlackRock Solutions’ analytics infrastructure Aladdin, using the interest rate, credit, mortgage and risk models developed internally by BlackRock, and Thomson Reuters DataScope data and evaluated pricing service.

“We are providing key risk calculations, such as key rate duration, as part of our delivery feed to Thomson Reuters,” said Dennis Kirincich, managing director at BlackRock Solutions. “By providing additional analytics, we are decomposing interest rate sensitivity across the curve.”

Key rate durations (KRDs) are based on the notion of partial interest rate shifts, which when aggregated, approximate a parallel shift in the spot curve. KRDs measure the price sensitivity of a security or portfolio to changes in different parts of the yield curve.

“KRDs quantify an asset or portfolio’s sensitivities to independent shifts along the yield curve at select points [e.g., 2-year, 5-year, 10-year, and 30-year] and thereby help portfolio managers understand their curve positioning,” Kirincich said.

Derived analytics are designed to help institutional asset managers, hedge funds, banks, insurance companies, sovereign wealth funds, corporate treasuries and family offices better validate and manage their fixed income portfolios to mitigate portfolio risk.

“Interest rates are at lows not seen in decades and there’s no question that economic growth has been sluggish in recent years — and the result has been a flattened yield curve,” Kirincich said.

Meanwhile, increased focus on risk has driven investor demand for greater transparency into portfolios, and the regulatory environment has grown far more complex, with firms now hampered by increased requirements for stress testing and macroeconomic scenario analysis.

Asset management firms require the ability to model market, credit and liquidity risk on multiple asset types and create custom scenarios to assess the risk impact of market events and new trades across their portfolios and broader business.

“The explosion of data, and the ability to integrate, analyze and derive insight from it through analytics technology, are providing new business opportunities for financial services firms to drive profitability and differentiate their business,” said Dr. Andrew Aziz, director of risk analytics at IBM. “These include providing granular modeling at the instrument level, developing other custom instrument models and scenarios, and providing broad instrument coverage.”

Gravitas, a co-sourcing platform providing cloud technology, collaborative outsourcing, risk analytics and research support to the alternative investment industry, has chosen the IBM Risk Analytics engine to provide Risk-as-a-Service for emerging and mid-sized hedge funds.

As part of its Risk Reporting Plus and Risk Co-Sourcing services, Gravitas risk analysts will utilize IBM’s risk technology to offer advanced analytics, modeling and custom reporting to help hedge funds meet regulatory requirements, support better investment decisions, and assist with the mitigation of unintended sector-industry concentration and secondary risks at both the fund and enterprise level.

“The Gravitas Risk platform has evolved into an extremely robust, Risk-as-a-Service offering for the alternative investment space,” said Jayesh Punater, founder and CEO of Gravitas. “IBM’s risk engine allows Gravitas to extend our risk services by providing highly customized risk reports for an accurate and reliable view of exposure, risk and performance at the portfolio, manager, strategy and enterprise levels. Funds benefit from customized reporting, spanning all asset classes, while retaining the level of control they require.”

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