Wealth Management through Performance Projections

Transcription

1 V0.1 Wealth Management through Performance Projections SAS Forum 22 th June 2005 Serge Dutkiewicz

2 Agenda Context Solution Operational Side - Functionality & Controls Technical Side Key Considerations Conclusions 2

3 Agenda Context Solution Operational Side - Functionality & Controls Technical Side Key Considerations Conclusions 3

4 Wealth Management Wealth Management Portfolio Management Financial Planning Liabilities Assets (classical and structured) + Tax efficient investment Cash flow management projects Compliance & Risk 4

5 Context : Risk of Portfolio Risk profile: Current strategies Proportion of 3 Assets Classes: Money Market, Bonds, Equities Risk profile High Portfolio Composition Bonds (40%-60%) Questionnaire Medium Low. Equities (40%-60%) What does it means in terms of Expected Losses or Gains? 5

6 Context : Evolution of Portfolios and Risk Assets Liabilities Classification by types (Equities, Bonds,money market) Not a proper differentiation within a types equities (Ex: Aggressive equities on Nasdaq, conservative equities on BEL20 ) New Assets Classical assets Hedge funds, Classifications? Derivatives, short positions, financial contracts Portfolio Management Liabilities Products with embedded options, Classifications? Leverage business, portfolio with low risk assets could turn up to be very aggressive New asset types 6

7 Agenda Context Solution Operational Side - Functionality & Controls Technical Side Key Considerations Conclusions 7

8 Business Scenario in advisory management I have Assets in my portfolio : Eur in low volatile Euro Bonds Willing to take risk not through Equities & strong feeling on those Euro Bonds I want to borrow money to invest more: Borrow for 3 months Chf (today equivalent ~ Eur) to invest in the same bonds Short term interet rate are very low in CHF Pledge of this loan would be my assets I might perform forward FX operations : I want a contract to buy CHF against ~ Eur equivalent in 3 months The MTM of this position is zero at trade date 8

9 Solution : Performance Projections 95% MTM 75% Current MTM 50% 25% 5% Time Risk is defined factually in terms of losses and gains 9

10 Solution : Risk Profile Assessment 95% MTM 75% Current MTM 50% 25% 5% Time Acceptable 95% worst case scenario for clients 10

11 Solution : Liabilities Assessment Bank is managing its current and future exposure 95% MTM 75% Current MTM 50% 25% Liabilities alerts on all scenarios with liquidity factors Debt quality... Time to Orange Limit Time to Red Limit Time to Liability Limit 5% Time 11

12 Agenda Context Solution Operational Side - Functionality & Controls Technical Side Key Considerations Conclusions 12

13 Remarks on Functionalities Performance projection Only statistics, not guaranteed to clients But the bank has to make every effort to deliver Liabilities Short (options, ETF...), Forward contracts, Loans Very conservative checks since, if the client defaults, the bank has to fulfil the contract 13

14 Controls (1/2) MTM 95% 75% Current MTM Portfolio valuation 50% 25% Time 5% Alerts and communication to clients if the portfolio MTM is close to the 5% worst case scenario Alerts and communication to clients if the 5% worst case scenario is below the risk profile curve On demand monitoring for new portfolio or any changes in portfolios 14

15 Controls (2/2) Liability alerts on all scenarios with liquidity factors Debt quality... Time to Orange Limit Time to Red Limit Time to Liability Limit Material Level Daily monitoring of alerts justified by strong business case On demand monitoring for new portfolio or any changes in portfolios All portfolios with active alerts are discussed in a committee The bank can decide to stop the strategies 15

16 Agenda Context Solution Operational Side - Functionalities & controls Technical Side Key Considerations Conclusions 16

17 How does it work Based on Monte Carlo simulation on diffusion process SAS Risk Dimensions to model joint distributions In each simulation indicators are computed SAS Risk Dimensions with all its flexibility was the perfect tool to achieve such a project 17

18 Sample Consider a portfolio with : one equity A and one equity B Hypothesis : Equities prices are the only risk factors (no technical analysis) 18

19 Sample Process equity A Value Process Equity A=adt+bdz Drift : adt Time hazard : dz 19

20 Sample: Process equity B Value Process Equity B=cdt+ddz Drift : cdt Hazard B : dz indépendant Time Hazard B : dz dependant Hazard A : dz 20

21 Sample: Drawing performance projections Thousands of simulations on the sum of the two processes 21

22 Agenda Context Solution Operational Side - Functionalities & controls Technical Side Key Considerations Conclusions 22

23 Key considerations Strong quantitative analysis Computing time (parallel computing, new features of SAS9 ) Data Management Cost of support 23

24 Agenda Context Solution Functionalities & controls Technical side Key Considerations Conclusions 24

25 Conclusion Clear differentiator through private banking management Potential to increase revenues Answer to compliance issues Better management of operational risks Strategic positionning and Strong business case 25

26 Thanks for your attention Questions? 26