Risk Metrics Risk Manager 3.7 RMClient Batch Application

RiskMetrics RiskManager 3.
7 RMClient Batch Application
Table Of Contents
RiskManager ................................................................................................................................. 1 Help Resources .............................................................................................................................. 1 Getting Started with RiskManager .................................................................................................... 3 Read Me First - Getting Started..................................................................................................... 3 Loading Positions - Getting Started................................................................................................ 4 Import the portfolio file - Getting Started ....................................................................................... 6 Creating a Report - Getting Started ............................................................................................... 7 Report Reference Guide ............................................................................................................... 8 Statistics Reference Guide .......................................................................................................... 10 Getting Started Demo Map ......................................................................................................... 14 Release Notes.............................................................................................................................. 15 New User Features in RiskManager3.7 ......................................................................................... 15 Recycle Bin............................................................................................................................... 15 New Look ................................................................................................................................. 15 Position Editor .......................................................................................................................... 15 Tags ........................................................................................................................................ 15 View Managers and Filter Groups ................................................................................................ 15 Bucket Dividers......................................................................................................................... 15 Performance Improvements........................................................................................................ 16 Editors ..................................................................................................................................... 16 Encryption and Compression....................................................................................................... 16 New Administrative Features in RiskManager 3.7........................................................................... 16 AuthDB Account Changes ........................................................................................................... 16 Admin Actions........................................................................................................................... 16 Rules for access ........................................................................................................................ 16 Account Creation....................................................................................................................... 18 Session Timeout ....................................................................................................................... 18 Passwords ................................................................................................................................ 18 Change Password OnNext Login .................................................................................................. 18 Nightly Tasks............................................................................................................................ 18 Audit Logging ........................................................................................................................... 18 RiskManager 3.7.1 Analytical Features ......................................................................................... 20 RiskManager 3.7.2 Analytics Features .......................................................................................... 22 RiskManager 3.7.3 Analytics Features .......................................................................................... 23 RM 3.6 Release Features ............................................................................................................ 26 RM 3.5 Release Notes ................................................................................................................ 27 RiskManager 3.4 New Features, March, 2002 ............................................................................. 33 Section .................................................................................................................................... 33 Location ................................................................................................................................... 33 Feature .................................................................................................................................... 33 Batch Job ................................................................................................................................. 33 RM3.4 Changes to Swaption Asset Type ....................................................................................... 35 RM3.3 Release Features ............................................................................................................. 36 RISKMANAGER ............................................................................................................................ 39 Product Summary and Architecture ............................................................................................. 39 RM3 Architecture Diagram ....................................................................................................... 39 RiskManager Product Summary ................................................................................................ 40 System Components ............................................................................................................... 41 System Functions ................................................................................................................... 42 RM3 Key Features I ................................................................................................................ 44 RM3 Key Features II ............................................................................................................... 45 Setting up RiskManager3 PC Clients............................................................................................. 46 RM3 Client PC Configuration .................................................................................................... 46 Internet Explorer Version and Plug-ins ...................................................................................... 47 PC Client Browser Settings ...................................................................................................... 48 Browser Configuration Settings - Step by Step ........................................................................... 49 Starting RM3 ............................................................................................................................ 51 Risk Services Must Be Running................................................................................................. 51 Starting the RM3 Application.................................................................................................... 54 Browsing to the RM3 Web Application Host ................................................................................ 55 Logging into RiskManager3 ...................................................................................................... 56 RiskManager Home Page ......................................................................................................... 57 Home ...................................................................................................................................... 58
Table Of Contents
Application Site Map ............................................................................................................... 58 Administration Specific Site Map............................................................................................... 59 RiskMetrics Contact Information ............................................................................................... 60 Links..................................................................................................................................... 61 Messages .............................................................................................................................. 62 Administration .......................................................................................................................... 63 Administration and Security ..................................................................................................... 63 Administrator Home Page ........................................................................................................ 64 Creating Users ....................................................................................................................... 65 User Group Maintenance ......................................................................................................... 68 Send Multiple Messages .......................................................................................................... 72 User Hierarchy Commands ...................................................................................................... 74 Work with ............................................................................................................................. 78 Positions .................................................................................................................................. 94 Selecting Positions from the Home Page .................................................................................... 94 Working With Positions............................................................................................................ 95 Working with Positions - Commands ......................................................................................... 96 Position View Manager ............................................................................................................ 97 Import Positions ................................................................................................................... 100 Export Positions ................................................................................................................... 103 Editing Positions ................................................................................................................... 108 Duplicate Multiple Positions.................................................................................................... 123 Delete Multiple Positions........................................................................................................ 124 Position Group Maintenance ................................................................................................... 125 Index Builder .......................................................................................................................... 130 Index Builder Overview ......................................................................................................... 131 Fixed Income Index Example ................................................................................................. 137 Fixed Income Euro Example................................................................................................... 151 User File System ..................................................................................................................... 157 User File System Management ............................................................................................... 157 Market Data ........................................................................................................................... 159 Selecting Market Data from the Home Page ............................................................................. 159 About the Market Data Viewer................................................................................................ 160 Viewing Data Step by Step .................................................................................................... 161 Market Data Table Report ...................................................................................................... 163 Market Data Graphs.............................................................................................................. 164 Market Data Scatter Chart ..................................................................................................... 165 SVG Graphics....................................................................................................................... 167 SVG Viewer Help .................................................................................................................. 168 Preferences ............................................................................................................................ 169 Selecting Preferences from the Home Page .............................................................................. 169 Preferences - Instructions...................................................................................................... 170 Password............................................................................................................................. 171 Lines Per Page ..................................................................................................................... 172 Email .................................................................................................................................. 173 User Profile.......................................................................................................................... 174 Base Currency ..................................................................................................................... 175 Stress Testing......................................................................................................................... 176 Selecting Stress Testing from the Home Page .......................................................................... 176 Create Stress Test Scenarios ................................................................................................. 177 Edit Stress Test.................................................................................................................... 184 Duplicate Stress Test ............................................................................................................ 191 Duplicate Multiple Stress Tests ............................................................................................... 192 Delete Stress Test ................................................................................................................ 193 Delete Multiple Stress Tests ................................................................................................... 194 Report Statistics...................................................................................................................... 195 Report Statistics................................................................................................................... 195 Underlying Present Value....................................................................................................... 196 Future Value Statistic............................................................................................................ 200 Bond Equivalents.................................................................................................................. 202 Duration.............................................................................................................................. 206 Delta Equivalents ................................................................................................................. 217 Generalized PVBP Statistic ..................................................................................................... 220 Generalized Greeks............................................................................................................... 223 Reports.................................................................................................................................. 228 Selecting Reports from the Home Page ................................................................................... 228
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Table Of Contents
Customizable Table Report .................................................................................................... 229 Risk Attribution in Practice..................................................................................................... 233 Multiple RiskSetting Report .................................................................................................... 270 Credit Exposure.................................................................................................................... 275 MDI Report .......................................................................................................................... 285 Market Data Volatility & Correlations....................................................................................... 292 Portfolio Volatility and Correlations ......................................................................................... 298 Simulation Returns Analysis................................................................................................... 300 Market Group Report ............................................................................................................ 302 VaR Histogram Report........................................................................................................... 304 Other Report Topics .............................................................................................................. 306 Working with Risk Settings .................................................................................................... 322 Working with Horizons .......................................................................................................... 332 Working with Market Data Groups .......................................................................................... 338 Legacy Reports .................................................................................................................... 339 Graphics and Charts ................................................................................................................ 341 3D Data Charts .................................................................................................................... 341 Pie Charts............................................................................................................................ 343 ScatterPlots Charts ............................................................................................................... 345 Market Data Line Charts ........................................................................................................ 347 HeatMap Charts ................................................................................................................... 348 Histogram Charts ................................................................................................................. 350 Exporting Graphics ............................................................................................................... 351 Batch Control.......................................................................................................................... 352 Work with Batch Jobs............................................................................................................ 352 Create a Batch Job ............................................................................................................... 354 Batch Job Position Import ...................................................................................................... 356 User File System .................................................................................................................. 360 Batch Job Client Data Import ................................................................................................. 362 Batch Job Reports ................................................................................................................ 365 Batch Notification and Logs.................................................................................................... 366 Admin Batch Sequences ........................................................................................................ 369 Admin Batch Market Data Download ....................................................................................... 372 RMClient Batch Application .......................................................................................................... 373 RiskManager Batch Client Architecture ....................................................................................... 373 RMClient Download & Setup ..................................................................................................... 374 RMClient Step1 ....................................................................................................................... 375 RMClient Step2 ....................................................................................................................... 376 RMClient Step3 ....................................................................................................................... 377 RMClient Step4a ..................................................................................................................... 378 RMClient Step4b ..................................................................................................................... 382 RMClient Step5 ....................................................................................................................... 383 RMClient Step6 ....................................................................................................................... 384 RMClient Steps7-9................................................................................................................... 385 Scheduling RMClient Batch Runs ............................................................................................... 386 Index ....................................................................................................................................... 389
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RiskManager Help Resources

Help Resources News
What's New in the Help! RM 3.7 Release Notes - Lists Features in version 3.7.1 through 3.7.3 Inputs for EUR and USD Curve Construction Correction in RM3D v3.7 fxSingleBarrierOption Field 13 now reads - Specifies whether the barrier is initially above the asset price (1) or below the asset price (0). Credit Grades Names Reference Sheet Equity Exchange List for mapping equity positions in RM3D RM3D v3.7 - Tab Delimited Position Import Specification for Release 3.7 RM3D v3.7 Print Document Date Jan 26, 2004 Jan 5, 2004 Nov 13, 2003 Nov 5, 2003 Nov 3, 2003 Oct 31, 2003 Sep 22, 2003 Aug 28, 2003 July 14, 2003 June 12, 2003
RM 3.7 Release User Features RM 3.7.1 Analytic Features
Stress Tests updated to reduce correlation errors. (unzip and import stress xml file) Download a local copy of the Help Resources right click and save as... (download) 48mb file! FX Exotic Options Financial Instrument Topics RM3D New Edition: Equity Swaps added 3 new fields in exchangeTraded instrument RML and RM3D Equity Name field descriptions edited for all equity & credit grade instruments RML v 3.6 print document RM3D v 3.6 print document Equity Volatility Surface Table with ISIN & Ticker references for underlying stocks RMClient 3.6 Batch Application updated download installer here RM3.6 RMClient Application upgrade All users must now upgrade. Users must also update their scripts to include domain information Generalized PVBP Statistic updated - added ability to shift volatility surface. Credit Default Swaps & RML definitions Futures data reference table updated RM3.6 Release Features - hyperlinks to additional information and working papers are included Risk Attribution in Practice with worked examples
May 20, 2003 Feb 24, 2003 Feb 14, 2003 Feb 10, 2003 Jan 29,2003 Jan 17, 2003 Jan 7, 2003 Jan 2, 2003 Jan 2,
RiskMetrics RiskManager 3.7 RMClient Batch Application
2003 Market Data Volatility Spreadsheet Example Dec 4, 2002
Resource Editor
Resource Contributors
Research Contributors (New York)
Gavin W. Watson (New York) Gregg Berman (New York) John Duncan (London) Keith Koenigsberg (New York) Ron Papanek (New York) Kaylash Patel (London) Thomas Ta (New York) Allan Malz Jorge Mina Ninghui Liu George Zhou
Getting Started with RiskManager

Read Me First - Getting Started
Getting starting using RiskManager doesn't take too long. However, each user learns differently. Some users prefer a demo while others prefer start using the application right away. Everyone must learn how to:
1. 2.
Import position holdings - get you trades and investments into RiskManager Create Risk Reports - create your first reports
Once you master the basics of #1 and #2, you need to learn how to:
3.
4. 5.
Detailed supporting reports which provide background data to support the Risk Analysis figures.
Loading Positions - Getting Started

1. 2. 3. 4. Most users learn quickly by example, especially when loading & formatting position files. RM3D is an import format that is tab or comma delimited. Users of RiskManager can use Excel or a text editor such as TextPad www.textpad.com or notepad. Download the RM3D specification document for later reference. The example below is a tiny portfolio of equity positions. You can learn from this example by comparing the column positions with the import format guide for RM3D. Note the tags. You can have as many as you wish. Tags will enable your reports come to life. The positions represent 20 stocks held by the most accounts at Merrill Lynch as reported by the New York Times as of September 2002.
Sector Basic Materials Capital Markets Consumer Cyclical Consumer Stable Energy Finance Health Services & Systems Industrial Cyclical Insurance Network Technology
Security
Weight %
CITIGROUP INC
EXXON MOBIL CORP
GENERAL ELEC CO
15 AVAYA INC CISCO SYS INC LUCENT TECHNOLOGIES INC 5 5 5 15 JOHNSON & JOHNSON MERCK & CO INC PFIZER INC 5 5 5 10 HOME DEPOT INC WAL MART STORES INC 5 5 5 5 10 MICROSOFT CORP ORACLE CORP 5 5 10 AGERE SYS INC INTERNATIONAL BUSINESS MACHS 5 5 15 AT&T CORP AT&T WIRELESS SVCS INC VERIZON COMMUNICATIONS 5 5 5
Pharmaceuticals
Retail
Semiconductors Services Software & Services
INTEL CORP AOL TIME WARNER INC
Systems Hardware
Telecommunications
Utilities
Download this sample to your computer (right click and save as...). The RM3D file looks like the image below:
Note: in the above example we have chosen to use an optional field 'G' to and set the equity price of each stock to $1 to scale each position to $1000 invested (1000 shares of $1).
Why would you ever override the equity price?
If you RiskMetrics didn't have an equity series, you could proxy to another stock or market index. Next, you would set the price of that proxy using column G and then select a beta to leverage the volatility. The correlation of your proxied stock would follow the proxy.
Import the portfolio file - Getting Started
The next step is to import the sample equity portfolio. The import process will take the file from your computer and send it to the RiskMetrics RiskManager system and place it in the position database. Choose Positions/Import
Creating a Report - Getting Started

1. 2. The most flexible report is the customizable table report. From the report tab, select create a new report.
3. 4. 5. 6. 7.
Choose the customizable table report. For now, keep the position set 'all positions'. For now, go with the default risk settings. Keep the VaR statistic (one column). It is Historical Simulation & 95% confidence. Choose the drill-down dimension of 'position'.
Report Reference Guide

RiskManager report types - the left column lists all the types of reports in the RiskManager application. Each report type is a layout manager from which users may construct a wide variety of customized risk, detail, and data reports. Statistics - all report types are built with statistics defined column-wise and tag dimensions row-wise.
Tabul ar Repor t Type

Generali zed Table Reports
Description
Uses
Customi zable Table Report
Lay out statistics column-wise with multiple tag dimensions row-wise. In addition, columns may be subdivided into one dimension (ie total/long/short, risk type, sector).
MultiRisk Setting Report Histogr am VaR Report Origina l Single Statisti c Report (Legac y)
Use this report to look at each statistic under: (a) different risk settings, such as multiple look back periods, VaR horizons, decay factors, analysis dates, pricing dates or base currencies. (b) Multiple blocks of positions. Each position block will be calculated separately. Calculate VaR for multiple confidence intervals and is used to generate a VaR histogram.
Buy Side: Measure Relative VaR of an account versus a benchmark. Measure relative underperformance due to stress tests, shocks, and scenarios. For Fixed Income, examine duration bets using contributional duration and divide curves by maturity sector. For Equity and balanced funds, divide risk by account, portfolio manager, asset class, country, sector, etc. Hedge Funds: Measure VaR statistics, Stress Tests, and sensitivities across multiple funds, strategies, regions, currencies, etc. Divide Risk by long/short/net, risk type, Sell Side Fixed Income: Measure VaR statistics, Duration, DV01, Bond Equivalents, and stress scenarios across asset groups, maturity bands, cashflow maturity sectors, traders, desks, regions, etc. Sell Side Equity: Divide risk and stress measurements by country, sector, industry group, fund, desk, currency, etc. Multi Risk Setting - compare side-by-side analysis of risk and stress measurements against different assumptions. Analysis may be relative to Benchmarks if desired. Multiple Position Blocks - Pull together separately calculated portfolios & accounts (ie not commingled). Each analysis block may be relative to benchmark. Report may contain mixed relative and nonrelative analysis.
Compare VaR at different confidence levels, all on one report. Note: the customizable table report can produce the same information. The graphics output for 'Histogram' will show a picture of the return distribution.
To be discontinued (legacy report). All the functionality of this report is available in the Customizable Table Report.
Note: must have show legacy reports turned on in Preferences/Report Setup
Risk Attrib ution

Risk Attributi on Report Calculate Tracking Error and Incremental Tracking Error. Asset Managers Only - Relative Risk to Benchmarks. Decomposition of Risk into Country and Sector Allocation Risk and Security Selection risk. Show Benchmark Weights, Portfolio Weights, and Bets taken alongside the risk. Features include ability to limit the display to top or bottom N rows under any dimension (ie top 5 riskiest stocks within each sector.
Credi t Expo sure

Calculate: 1. Base Credit Exposure 2. Expected Credit Exposure 3. Maximum Credit Exposure Report can attach a limits by dimension list to show exposure excessions against policy limits.
Credit Exposure Report MDI Report (Credit Manager Format) Original Credit Exposure Report (Legacy)
Calculate credit exposure for multiple counter parties and netting dimensions.
The Market Driven Instrument report can be imported directly into Credit Manager.
Report to export the RiskMetrics Credit Manager application.
Credit Exposure report to be discontinued (legacy report).
Note: must have show legacy reports turned on in Preferences/Report Setup
Detail ed & Interm ediate Result s

Portfolio Correlatio ns and Volatilitie s Volatilities and Correlations of a portfolio using one drilldown dimension. Show the volatility and correlation between positions, portfolios, sectors, or any dimension. Produce a table of returns date-wise (Historical Simulation) or by simulation trial (Monte Carlo Simulation) by dimension. For example, tabulate the returns by sector, trader, strategy, all the way down to the position level. Graphics: Display by Histogram shows the shape and details of the distribution that enters the VaR calculation of any dimension.
Simulatio n Portfolio Returns
Generates the simulated returns for a portfolio using one drilldown dimension
Marke t Data Repor ts

Market Data Correlati ons and Volatiliti es Market Data Returns
Volatilities and Correlations of a group of market data time series. Lists the historical returns for multiple time series of market data.
Show the volatility and correlation between time series in the RiskManager price and rates database. Tabulate time series prices & rates date-wise. Report depends on a market group definition.
Statistics Reference Guide

Reports are built column-wise with Statistics.
Statisti c Description
General Statistics Computes the net Present Value (mark-to-model). Many instruments in RiskManager allow the user to include the current price. With bonds, RiskManager will parallel shift the spot rate curve such that the PV will match the bond price given. With stocks, the price series of the mapped time series. This statistic gets the underlying present value in each report cell for the given drilldown.
Present Value Underlying Present Value Future Value Statistic Notional in Local Currency Notional in Base Currency Position Count Delta Equivalent s Value at Risk VaR
Estimate the value of the portfolio at a time in the future with respect to the current analysis date. Computes the notional (in the local currency for each position) of the positions in each report cell. Computes the notional (in the base currency of the valuation specification) of the positions in each report cell. Counts the number of positions in each report cell for the given drilldown. This statistic computes the Delta Equivalents using price sensitivity. The drilldown for this statistic must include riskFactor.
Computes the base Value-at-Risk. Computes the marginal Value-at-Risk contribution for each position or dimension level. Marginal VaR is best thought of as the amount that the total VaR across all positions would decrease by if a particular position were completely removed.
Marginal VaR
Computes the incremental Value-at-Risk contribution for each position defined in this Query. Incremental VaR is best thought of as the amount that the total VaR across all positions would change by if the size of a particular position were incrementally changed (i.e. by a small Increment amount). al VaR Averages the loss returns in the distribution with a greater loss than specified by the Expected confidence interval. For example, if 99% confidence is specified, the returns of the worst 1% Shortfall are averaged. Standard Deviation The standard deviation of returns. Asset Manager Specific Relative to Benchmark Portfolio Calculates the beta of a security vs the whole benchmark or vs the securities in a dimension level such as a specific sector. At the dimension level, calculate the beta of a investment Beta dimension level (sector) vs the benchmark sector. Risk Contributi on Incremental Tracking Error. Fixed Income Specific Bond The interest rate sensitivity of one portfolio with respect to another. Frequently the reference
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Equivalent portfolio will contain just one security such as the UST 10YR Note. s The duration of any fixed-income instrument is most generally defined as the ratio of its interest rate sensitivity to its current value. RiskManager measures interest rate sensitivities by parallel shifts of all the zero-rate vertices that comprise a particular yield curve, and current value is simply the Present Value of a position. This computation is known as Effective Duration and has the attractive property of being calculable for many instrument types, including those that do not have well-defined yield-to-maturities (as would be required for Macaulay Duration). Duration Credit Exposure Specific Base Credit Exposure Base credit exposure. Expected Credit Exposure Average of credit exposure at a given horizon. Maximum Credit Exposure Maximum credit exposure across all horizons. Stress Test & Sensitivit y Analysis
Ability to show the PV after the shift and the change in market value due to the shift Precedence note: <volatilityShiftInBasisPoints> takes precedence over <volatilitySurfaceShiftInBasisPoints>. <volatilityShiftInBasisPoints> allows users to specifiy a uniform shift to all implied volatilities. For an option-based position, the implied volatility can be either specified by the user or calibrated by RiskServer if left blank. The units for this are in absolute basis points. For example, a specified shift of 150 would raise a given volatility from 22.25% to 23.75%. This field can be any real number, should be optional, and default to zero if left blank. <volatilitySurfaceShiftInBasisPoints> allows users to specifiy a uniform parallel shift to all volatility curves. The units for this are in absolute basis points. For example, a specified shift of 150 would raise a given volatility from 22.25% to 23.75%. This field is consistent with the present tag <shiftInBasisPoints> that stresses interest rate curves. This field can be any real number, should be optional, and default to zero if left blank. <equityShiftInPercent> allows users to specifiy a uniform shift to all equity prices. The units for this are in relative percent. For example, a specified shift of -2.50 would drop a given equity price from 40 to 39. This field can be any real number, should be optional, and default to zero if left blank. allows users to specifiy a uniform shift to all fx rates relative to their base currency. The units for this are in relative percent. For example, a specified shift of 5.50 would increase a GPB/USD rate of 1.5 to 1.5825 (assuming a base currency of
<fxShiftInPercent>
Generalize d PVBP
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USD). This field can be any real number, should be optional, and default to zero if left blank. <commodityShiftInPercent> allows users to specifiy a uniform shift to all commodity curves. The units for this are in relative percent. For example, a specified shift of 25.0 would drop a 3-Month Gold price from 300 to 225. This field can be any real number, should be optional, and default to zero if left blank. <shiftInBasisPoints> this field already exists and allows users to specifiy a uniform parallel shift to all interest rate curves. This field should be made optional and default to zero if left blank.
<spreadShiftInBasisPoints> allows users to specifiy a uniform parallel shift to all non-riskfree interest rate curves. The definition of a risk-free curve is any curve that has been specified as the default for a currency. Thus non-risk-free curves are all the rest. Note this is only a best-effort determination of what is risk-free and what is considered a spread curve. Inflation-Indexed bonds fall into a grey area as do some other curves. This particular tag will eventually be superceeded by more precise CreditGrades analytics but is robust enough for general use. The user can always run a report on only those positions considered spreadbased in order to better distinguish instruments. The units for this are in absolute basis points. For example, a specified shift of 270 would raise a non-risk-free interest rates of 5.80% to 8.5%. This field is consistent with the present tag <shiftInBasisPoints> that stresses all interest rate curves. This field can be any real number, should be optional, and default to zero if left blank.
Stress Test PV Delta Change in PV due to a named Stress Scenario.
stress Test PV Net PV after application of a predefined Stress Scenario.
Generalize d Greek Sensitivitie s
Computational Procedure Compute P2 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.1. <equit Compute P1 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.1. yDelta Set <greekSensitivity> = (P2 P1) / (2 * 0.1). /> Resulting units are in base currency per %. Compute P2 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.2. <equit Compute P1 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.2. yGam Set <greekSensitivity> = (P2 + P1) / (0.2)2. ma/> Resulting units are in base currency per % squared. Compute P2 = <dvbpDeltaPV> for <shiftInBasisPoints>= 1. <inter Compute P1 = <dvbpDeltaPV> for <shiftInBasisPoints>= 1. estDel Set <greekSensitivity> = (P2 P1) / 2. ta/> Resulting units are in base currency per bp. <inter Compute P2 = <dvbpDeltaPV> for <shiftInBasisPoints>= 2. estGa Compute P1 = <dvbpDeltaPV> for <shiftInBasisPoints>= 2. mma/ Set <greekSensitivity> = (P2 + P1) / (2)2. > Resulting units are in base currency per bp squared.
Sensi tivity Type
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<com Compute P2 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.1. modity Compute P1 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.1. Delta/ Set <greekSensitivity> = (P2 P1) / (2 * 0.1). > Resulting units are in base currency per %. <com Compute P2 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.2. modity Compute P1 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.2. Gam Set <greekSensitivity> = (P2 + P1) / (0.2)2. ma/> Resulting units are in base currency per % squared. Compute P2 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 1. <spre Compute P1 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 1. adDelt Set <greekSensitivity> = (P2 P1) / 2. Resulting units are in base currency per bp. a/> <spre Compute P2 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 2. adGa Compute P1 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 2. mma/ Set <greekSensitivity> = (P2 + P1) / (2)2. > Resulting units are in base currency per bp squared. Compute P2 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.1. <curre Compute P1 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.1. ncyDe Set <greekSensitivity> = (P2 P1) / (2 * 0.1). lta/> Resulting units are in base currency per %. Compute P2 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.2. <curre Compute P1 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.2. ncyGa 2 mma/ Set <greekSensitivity> = (P2 + P1) / (0.2) . Resulting units are in base currency per % squared. > Compute P2 = <dvbpDeltaPV> for <volatilityShiftInBasisPoints>= 1. Compute P1 = <dvbpDeltaPV> for <volatilityShiftInBasisPoints>= 1. <vega Set <greekSensitivity> = (P2 P1) / 2. /> Resulting units are in base currency per basis point. Compute P2 = <futureValue> for <horizon>=1D and <valueTodaysFlows/> Compute P1 = <presentValue> Set <greekSensitivity> = P2 P1.
Resulting units are in base currency per calendar day. The future value described here is not the future value statistic provided by RiskServer. Rather, it is the value of the position given a valuation spec (or risk settings) with analysis date set to tomorrow, but nothing else changed. In particular, the pricing date must be unchanged.
<theta />
PVBP Delta PVBP
Change in present value when all yield curves are parallel-shifted by the number of basis points specified in the report layout manager. Present value after all yield curves parallel-shifted by the number of basis points specified in the report layout manager.
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Getting Started Demo Map

Importing Positions Reports Customizable Table Report Sell Side - Fixed Income Buy Side - Fixed Income Buy Side - Equity Fund of Funds - Mixed Asset Types Multiple Risk Setting Report Credit Exposure Portfolio Volatility & Correlation Simulation Returns Market Group Data Report Time Series Volatility & Correlation Assumptions, Setup and Preparation Usability Risk Settings Horizon Groups 10yr Equivalents Reference Portfolio Stress Tests and Scenario Analysis Setting User Preferences Demo RiskSettings Demo Horizon Group Demo 10yr Equivalents Reference Portfolio Simulation Return Report Demo Sell Side - Fixed Income Report Demo Importing Positions Demo
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Release Notes
New User Features in RiskManager3.7 Recycle Bin
Most deleted items can now automatically go to a recycle bin instead of being immediately deleted (notable exceptions include deleted users, task sequences, filter groups, messages, RMFiles, indexes and processed indexes). Because the recycle bin can grow quite large if ignored, a user preference controls the expiration of recycled items. There are three expiration settings: Immediate - do not send anything to the recycle bin N days auto-delete anything older than N days
The maximum number of days a user can select is configurable by the ASP system administrator. The recycle bin is accessed via the Home pull-down menu. A list page containing all recycle bin items is shown. Sorting, searching and customizable columns are available as with all other list pages. The user has the following recycle bin operations: Empty the recycle bin Delete multiple Restore multiple Restore all Refresh recycle bin
In addition, any individual item can be restored or deleted from the recycle bin via a pull-down menu obtained by clicking on an object in the list.
New Look
The RiskManager interface has had a makeover and now sports a crisp new look and feel.
Position Editor
The position editor is now based on the same technology as the report editor, giving us much more flexibility and stability.
Tags
Most objects can now be tagged through their respective editors. You have the option of tagging with text, numeric, date and relative date types.
View Managers and Filter Groups

Formerly only available for positions, we now have view managers and filter groups for all objects as well.
Bucket Dividers
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We have a new application object accessible under stored reports called bucket dividers. It is used to define arbitrary ranges.
Performance Improvements
List pages load faster due to database performance improvements.
Editors
Multiple editor windows can now be open at the same time.
Encryption and Compression

When creating a new domain you have the option to have all application objects encrypted and/or compressed.
New Administrative Features in RiskManager 3.7 AuthDB Account Changes

We now have the capability to import a domain from another AuthDB. Also, changes have been made to the domain settings interface for easier changing of identical settings across multiple domains. You can also refresh market data.
Admin Actions
Administrative functions are broken down into individual assignable actions (e.g., switch-to, create/edit users, activate/deactivate users). Now a user can have access to some admin actions and yet still be blocked from accessing others. In addition, groups can be assigned sets of actions. Members of a group (including other groups) will inherit the groups actions except for those actions explicitly denied for a particular user. For each admin action, there are three possible settings for a group or user: Explicit Allow (EA) Explicit Deny (ED) Inherit, which may be allow (IA) or deny (ID), depending on group membership The admin account comes preassigned with all admin actions set to EA (superuser). As in previous version of RiskManager, any member of admin has full access to all admin actions. Clients that do not require this level of granularity for administrative permissions will not notice any difference.
Rules for access

Given an action A and a user U: If rights(U,A) in (EA, IA) then User is granted access Else if rights(U,A) in (ED, ID) then User is denied access EA and ED are always explicit settings for a user. In the absence of an explicit setting, the default is to inherit access rights. The determination of IA and ID depends upon group membership as follows.
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Release Notes
Given the set of all groups G of which U is a member, and a set of explicit inherited settings R found in G (which will be 0 or more occurrences of EA or ED): If R is empty then User is denied access (no explicit setting) Else if R contains ED then User is denied access (any ED in group membership results in deny) Else User is granted access Note that these rules are for administrative actions. If we were to use this scheme in the future for nonadministrativeactions (e.g., edit position, create report), then empty R would mean a user is granted access. Admin actions are currently grouped into five roles. Each role is flagged as administrative or nonadministrative, which can be used to determine the default behavior in the absence of any explicit setting. The following diagram helps illustrates the scheme.
Four groups are shown: Admin, Group1, Group2, and Group3. There are two actions, A1 and A2 (like switch-to and create user, for example). Admin is explicitly assigned allow access to both actions (EA,EA). User4 is a member of Admin and thus inherits allowed access rights as well. User5 is not a member of any group, has no explicit settings, and is thus denied access to both actions. Group3 is not a member of any group and is denied access by default. However, Group3 does have an explicit allow for action 1 (EA,ID). User3 is a member of Group3 and inherits the same privileges (IA,ID). Group1 is a member of Admin and inherits those rights. However, Group1 has an explicit deny for action 2 (IA,ED). Group2 is a member of Group1 (and thus, Admin). Also, Group2 has an explicit allow for action 2. Even though inheritance says to deny access to action 2, an explicit setting overrides inheritance (IA,EA). User2 is a member of Group2 (and thus, Group1 and Admin). Even though Group2 has an explicit allow for action 2, through inheritance we find Group2 has an explicit deny. Since User2 has no explicit setting for action 2 the explicit deny overrides all other settings (IA,ID). This may look a bit strange, but it is patterned after the Windows security model.
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Lastly, while User1 inherits Group1s limited access (IA,ID), User6 has an explicit allow setting for action 2 which overrides the inherited setting from Group1 (IA,EA).
Account Creation
Account creation is now available via an application programming interface (API).
Session Timeout
This is now a security setting.
Passwords
Password Security Numerous options are now available in security settings for enhanced password security, including: Maximum number of consecutive identical characters: (e.g. aaa111) Require letters: (e.g. abcdef) Require numbers: (e.g. ab1c23) Require special characters: (e.g. ab.cd$) Require mixed case: (e.g. abCdEf) Prohibit leading and trailing spaces. Prohibit inclusion of user ID (i.e. user1abc when username is user1)
Change Password OnNext Login

This option forces a user to change their password the first time they login. Option To Not Explain Problem At least one client requested the ability to not tell a user why their password is invalid. This is now a security setting (Hide Password Errors). Generate Random Password Depending on the security setting (Automatically Generate Passwords), the application can now automatically generate a password according to the password security settings and email it directly to the new user. This way the person creating the account never sees the password.
Nightly Tasks
There is now a list of nightly tasks including: Determine if any user accounts expired today Clean recycle bin (see recycle bin below)
Audit Logging
Numerous actions are now logged, including: Create account Edit account Delete account Create group account Edit group account
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Release Notes
Delete group account Reset password Remove from group Add to group Disable account Enable account Edit security settings Account login Account logout Edit password Edit administrative permission Batch login Switch to Failed login Create domain Edit domain Delete domain
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RiskManager 3.7.1 Analytical Features

Convertible Bond Model Enhancements
The Convertible Bond model has been upgraded to allow a more flexible tree structure. Previously the number of nodes had been fixed for all bonds. This led to over-calculation for some bonds, and under-calculation for others. This upgrade provides a more flexible model in which the number of nodes and their positions are based on the parameters of the bond. This approach yields more robust risk analytics and allows the model to synchronize the decision tree with bond features such as call dates and put dates. Users should expect to see changes to their current valuation and risk analyses for existing Convertible Bond positions based on these improvements as well as those listed below.
Convertible Bonds - European-style Call and Put Schedule
In the previous model all call and put schedules were considered to exercise American-style (i.e. bonds can be called or put at any date on or after that indicated). This update allows for European-style calls and puts (i.e. bonds can be called or put only on the exact dates specified). Since almost all put schedules for Convertible Bonds are European that will be set as the new default. Since most call schedules are American that will be left as the default. In either case users can override these defaults.
Convertible Bonds - Contingent Conversion
The convertible bond model has been extended for cases in which the owner of the bond cannot convert to the underlying stock unless the underlying stock is above a certain percentage of the conversion price. This feature is similar to the existing soft call feature which prevents the issuer of the bond from calling (or forcing conversion) unless the underlying stock is above a certain percentage of the conversion price.
Convertible Bonds - Blended Discount Rates
The Convertible Bond model has been enhanced to discount cash flows by a "blended rate" based on risk-free and "implied" risky rates. The blended rates will be computed internally as a function of how far a bond is in-the-money. This update should yield better pricing and sensitivities and better follows industry-standard practices.
Convertible Bonds - Floating Rate Coupons ***
The Convertible Bond model will be enhanced to allow for floating coupons based off of a yield curve similar to our current FRN model.
Digital F/X Options
A new instrument has been added providing for OTC F/X Digital Option functionality. This instrument will pay off a fixed amount based on whether a given FX rate is above the strike price at expiry.
Digital Interest Rate Options
A new instrument has been added providing for OTC Interest Rate Digital Option functionality. It will pay off a fixed amount based on whether a given rate is above the strike price at expiry. Functionally, this instrument is the same as a digital cap.
Knock-In Caps and Floors
A new instrument has been added providing for OTC Knock-In Caps and Floors. This instrument acts like a standard cap but payoff only occurs if the final rate is above a second (higher) strike price. This instrument will be modeled as the combination of a standard cap (at the higher strike) plus a digital interest rate option (at the higher strike in comparison with the lower strike).
Double-Strike Caps and Floors
A new instrument has been added providing for OTC Double-Strike Caps and Floors. This instrument acts like a standard cap at the lower strike but resets to a new cap at a higher strike if the final rate is above that higher strike. This instrument will be modeled as a combination of two standard caps (one at each strike) minus a digital interest rate option (at the higher strike in comparison with the lower strike).
Bermudan Swaptions
The Swaption model has been extended to provide for Bermudan Exercising. In contrast to our current European Swaption model, which allows exercising only at the start of the underlying swap, this update will permit exercising at any intermediate coupon date, up until the maturity of the underlying swap.
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Release Notes
Constant Maturity Swap (CMS) Caps, Floors, and Collars
The Cap, Floor, and Collar models have been extended to provide for caps and floors on constant-maturity rates, such as the 10-year T-Bond rate. Currently the models can only cap short-term rates that are synchronous with the coupon frequency. This update will provide for more general CMS functionality similar to our FRN model.
Standard Bonds - European-style Call and Put Schedules ***
In the current model all call and put schedules are considered to exercise American-style (i.e. bonds can be called or put at any date on or after that indicated). This update will allow for European-style calls and puts (i.e. bonds can be called or put only on the exact dates specified). American-style will remain as the default setting.
Mandatory Convertible Bonds Enhancements
Mandatory Convertible Bonds are quite stable to general volatility and spread moves since their payout function is somewhat similar to that of an equities futures (e.g. one always receives shares at maturity). The primary difference is a flattening of the payout function near the issue price putting a small damper on upside potential. This is best thought of as the purchase of a call option and the sale of a put option. Thus the primary volatility risk is not to general levels but rather to call/put skew. The Mandatory Convertible Bond model has therefore been modified to calibrate prices based on call/put skew rather than spread. This should provide for much more robust calibration to user-provided prices.
Simulation-based Incremental VaR
VaR and Marginal VaR have always been available using Parametric, MonteCarlo, or Historical methodologies. However, Incremental VaR has only been available using the Parametric methodology due to questions about the stability and interpretation of Simulation-based Incremental VaR. With this upgrade RiskManager will allow for simulation-based Incremental VaR as well. The calculation is performed by inspecting the individual scenarios for each position (or portfolio, etc.) as it contributes to the total VaR. In order to avoid the instabilities associated with such a computation, multiple scenarios surrounding the indicated confidence are averaged together. This provides for a more robust estimation when the correlation of risk factors are very low, and sub-components of P/L vectors show significant changes from one scenario to the next. Though this method is applicable for both the Monte Carlo and Historical methodologies, care must be taken to ensure a large enough sample of scenarios in the tail when performing Historical simulations. For example, choosing a 99% confidence level over a 250-day look-back period only yields two tail observations. Longer look-back periods or lower confidence levels should be used in these cases.
F/X Risk Attribution
Risk Attribution, a separate analysis and report within RiskManager, has been updated to explicitly compute components of risk due to F/X moves. In the past this had been done for all standard VaR and sensitivity statistics, but not as a separate component of RiskManager's Risk Attribution report. The enhanced risk attribution will be particularly useful for Asset Managers benchmarked against Global Equity Indices.
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RiskManager 3.7.2 Analytics Features

Calibration of Credit Default Swaps according to Market Price
RiskManager currently allows the calibration of asset volatility according to a given fair spread. This update will allow the calibration of asset volatility according to a given Credit Default Swap price in addition to fair spread. If given both, precedence will be given to the fair spread.
Vega Risk for Callable Bonds and Bermudan Swaptions
Vega risk will be available for the Callable Bond and Bermudan Swaption instrument types.
Improved Cash Flow modeling for Amortizing Bonds and Swaps
With this version of RiskManager, principal payment dates and interest payment dates are now independently determined. Formerly, RiskManager assumed specification of a full paydown schedule list including all coupon payments and no extra payments. As a result, if an instrument has a paydown schedule list that does not correspond exactly with the interest payment dates, present value will differ between RiskManager 3.7.2 and prior versions.
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Release Notes
RiskManager 3.7.3 Analytics Features

Improved Cash Flow modeling for Amortizing Bonds and Swaps
The modeling of cash flows for Amortizing instrument has been updated in this version of RiskManager. In the new version, principal payment dates and interest payment dates are now independently determined. Formerly, RiskManager assumed specification of a full pay down schedule list including all coupon payments and no extra payments. As a result, if an instrument has a pay down schedule list that does not correspond exactly with the interest payment dates, present value will differ between this version and prior versions.
Convertible Bond Option (ASCOT)
A new instrument type has been added to model Convertible Bond Options. This new instrument type is intended to model the Convertible Bond Option portion of an ASCOT (Asset Swapped Convertible Option Transactions).
Constant Maturity Swap (CMS) Caps, Floors, and Collars
The Cap, Floor, and Collar models have been extended to provide for caps and floors on constant-maturity rates, such as the 10-year T-Bond rate. Currently the models can only cap short-term rates that are synchronous with the coupon frequency. This update will provide for more general CMS functionality similar to our FRN model.
Mandatory Convertible Bonds Enhancements
The Mandatory Convertible Bond model has been modified to calibrate prices based on call/put skew rather than spread. Mandatory Convertible Bonds are quite stable to general volatility and spread moves since their payout function is somewhat similar to that of an equities futures (e.g. one always receives shares at maturity). The primary difference is a flattening of the payout function near the issue price putting a small damper on upside potential. This is best thought of as the purchase of a call option and the sale of a put option. Thus the primary volatility risk is not to general levels but rather to call/put skew. The Mandatory Convertible Bond model has therefore been modified to calibrate prices based on call/put skew rather than spread. This should provide for much more robust calibration to user-provided prices.
Calibration of Credit Default Swaps according to Market Price
The Credit Default Swap model has been enhanced to allow calibration according to Market Price in addition to fair spread. RiskManager currently allows the calibration of asset volatility according to a given fair spread. This update will allow the calibration of asset volatility according to a given Credit Default Swap price in addition to fair spread. If given both, precedence will be given to the fair spread.
Convertible Bonds - European-style Call and Put Schedule
The Convertible Bond model has been enhanced to allow specification of European-style Call and Put Schedules. In the previous model all call and put schedules were considered to exercise American-style (i.e. bonds can be called or put at any date on or after that indicated). This update allows for European-style calls and puts (i.e. bonds can be called or put only on the exact dates specified). Since almost all put schedules for Convertible Bonds are European that will be set as the new default. Since most call schedules are American that will be left as the default. In either case users can override these defaults.
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Convertible Bonds - Floating Coupons
The convertible bond model has been extended to allow for floating coupons based off of a yield curve similar to the current FRN model. Note that now a convertible bond can now be modeled with all fixed coupons or all floating coupons. Convertible bonds with both fixed and floating coupons is an enhancement that is noted for future release.
Forward Starting Swaption
The swaption model has been enhanced to allow the swap to start after the option expiration date for a European style option.
Vega Risk for Callable Bonds and Bermudan Swaptions
Vega is now available for the Callable Bond and Bermudan Swaption instrument types when drilling down by risk type.
Vega Risk on Commodity Options
Vega is now available for Commodity Options. The Crude Oil Implied Volatility Curve is available for use with the new model when drilling down by risk type.
Dollar Delta and Dollar Gamma
New statistics have been added to RiskManager called Dollar Delta and Dollar Gamma. Dollar delta can be described as the delta hedge of the position expressed in dollars. In other words, it indicates how much of the underlying one needs to buy/sell in order to delta hedge a position or group of positions. Similarly, dollar gamma can be described as the change in the delta hedge (or dollar delta) when the underlying moves by a certain amount. The implementation will allow the user to choose a one-sided or two-sided shift in underlying as well as allowing the user to specify the amount of the shift. In addition, we incorporate a third parameter that allows the user to stress the underlying before calculating delta and gamma. In other words, the user can obtain the values that delta and gamma would take if the underlying (i.e., equity prices, commodity prices, currencies, interest rates, spreads, or implied volatilities) moved by a certain amount. We calculate delta and gamma for equities, currencies, commodities, volatilities, interest rates and spreads.
Generalized PVBP
Several enhancements have been made to the functionality available within the Generalized PVBP statistic. Specifically, we've added to the items that can be tweaked as well as the ways to tweak them. Details on each can be found below. In addition, we have added the ability to create a user defined stress test which incorporates much of the new and existing Generalized PVBP functionality. Stress I-Rates and Volatilities by a Percentage The Generalized PVBP statistic has been enhanced to allow the stressing of volatilities and interest rates by a percentage of their value in addition to the existing stress by basis points. Stress Spreads by a Percentage
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Release Notes
The Generalized PVBP statistic has been enhanced to allow the stressing of spreads by a percentage of their value. Presently the only option is to stress by an absolute value (in basis) points. The stressed spread will be a constant average spread over the term of the curve, sometimes referred to as the Option Adjusted Spread. Note that spreads have been separated from the request above since spreads are not a risk factor. To isolate the "spread" and be able to stress it by a percentage, RiskManager needs to identify the Risk-Free component of the curve in order to extract the spread. To do so, a table will be maintained to identify a risk-free curve for each currency. Stress Time The Generalized PVBP statistic has been enhanced to allow the stressing of time for option type instruments. This enhancement will allow reporting of the absolute present value at a future date or the delta of present value at a future date to today's present value. A date or number of days can be input to determine the future date. For positions that expire prior to the future date, the value of the statistic will match a position that expires at the future date. Caps will not be supported initially. Stressing time for convertible bonds and vanilla bonds will work the same as stressing time for options using the clean price of the bond at both present and future date. Bonds with schedules such as amortization and coupon changes will not be supported in this release. Stress Risk Factors by Number of Std Deviations The Generalized PVBP statistic has been enhanced to allow the stressing of risk factors by a number of standard deviations. This feature will allow stressing of underlying Equity, Currency, and Commodity risk factors based on number of standard deviations in addition to existing percentage and number of basis points. The standard deviation of the time series will be determined based on the risk setting definition (look-back period, decay factor). Stress by Tags The Generalized PVBP statistic has been enhanced to allow the user to apply one stress to one set of positions within the portfolio while applying a second stress to a second set of positions within the same column in a report. For example, move Volatility for positions tagged with Industry=Technology down 10% and move Equities up by 5% for positions tagged with Industry=Bank. This can be implemented either in the Generalized PVBP statistic definition within the report or the creation and use of a user defined stress test object.
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RM 3.6 Release Features

* Indicates feature to be released as sub-point release, after the initial release date of Jan 25, 2003. Analytics Write ups and notes are available, click on hyperlinks below. 1. 2. 3. 4. 5. 6. Issuer Specific Risk and companion working paper: Estimating issuer-specific risk for corporate bonds & A unified approach to credit risk for corporate bonds. RiskServer generated Historical Equity Volatility series for Vega Risk. Generalized PVBP -- Allows specifying market moves in one or more market types. Previously this stat allowed specifying a move in basis points for interest rates alone. Generalized Greeks delta, gamma, theta, vega. *Vega Risk for commodities dependent on options on commodity future vol data. New or Extended Asset types a. Commodity Swaps b. Equity Swaps c. Mandatory Convertibles d. Swaps with Accrued Interest e. Spread options f. *Credit default swaps g. *Total return swaps
RiskServer non Analytics 1. 2. 3. Position Info stats (next coupon, years to maturity, spread, etc.) Position Tag stats user defined custom tags available as position level report content. Support for <userData> section in RML queries for RiskServer only clients.
RiskServer ASP 1. Performance statistics for each query type
RiskManager ASP 1. Domains a. Separate DB for each domain b. Market Data partitioned by domain (allows dmx permissioning per domain and domain specific market data). c. Risk Services resources allocated per domain d. Separate Domain admin app. Market Cache Service (removes market meta data cache from Application Server memory space. Report Service removes from Application Server memory space and allows to be distributed.
2. 3.
RiskManager General functionality 1. Report editor rewrite (much faster) 2. Sortable columns in list pages
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Release Notes
RM 3.5 Release Notes

RiskManager: Risk Attribution Report: Includes the ability to filter top n or bottom n of a given statistic column at a given level and below. New charting: New Market data line charts Pie charts New Interactive Histogram - particularly useful for portfolio returns report. Market Data: Export Market List Searches (Tab Delimited) Auditing and Logging: Separate Error and Application Audit Logs Login success or failure Logout Report Group begin/end Report begin/end Batch start/end Notification: Allow Notification of task begun as well as task ended. Equity Identifiers: Support for entering alternative identifiers for equities in position creation interface. Import: Allow overwrite existing for application objects other than positions. Retains links in composite objects such as report and indexes. Session Management: Keep alive for long running processes such as report generation and imports Session timeout warning Credit Exposure Report: Add Present Value as a column. Security: Configurable Password lifetime Configurable Account lifetime Login Lockout after configurable number of failed logins. Administration: Enhanced System Status: Connection status to analysis and reference risk servers Datatrans connection status RMDB database availability and stats Current loaded data range (i.e. the Latest DMX data set date) ASP: User Migration from RMDB to RMDB Index Builder: Automatically reprocess index when edited. Market Data Service: Processing DMX Events - able to handle changes of DMX identifiers as well as record corporate actions, and changes in other meta data. RiskServer Service: Handle compressed queries. RiskServer Analytics: General Features: Quadratic Approximation for Callable and Convertible Bond Support for alternate DMX supplied identifiers for equities (ex. ISINs, Ticker, Cusip, etc.) Stat value as a % of Stat Total Return Horizon in Valuation Spec - sample returns at frequencies other than 1D. UK Inflation Linked Gilts
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Risk Attribution Statistics: Beta Statistic Configuration: Add configuration setting to allow or disallow dump of XML input for diagnostic purposes . Default is to allow dump of XML input. All analyses: Correct bug in handling of return horizon (not honored in historical analyses and other places). Credit exposure analyses: More efficient use of memory. Take into account the volatility of the risk factor when calculating the drift. Instrument tags: Make hierarchical tags non-case-sensitive. =============================================== All instruments: Add notional tag. Correct bug in secant calibration in RM3.4.1.72 and before, where calibration could "exit early" without correctly setting variables, if the given value is so far out of range that calibration was impossible. This correction has caused numerous questions with respect to FRNs where the price is far too high (so this explanation is repeated for FRNs). The problem can be demonstrated by getting position diagnostics and showing that the given value is out of range. With an older engine, the calibrated field may be wrong in this case. All instruments with volatility series: Add a check that the volatility calculated from vol series has to be positive. Though it may potentially affect all options which are using vol series, the happenings should be rare. Bond future option: Use secant method instead of bisection for calibrating yield-to-maturity for bonds; slight effect on values, but faster. Collar: Correct a bug in which the calibrated or calculated volatility from vol surface is used as user specified volatility in collars (volatility of caplets "bled over" into floorlets). Cap/Collar/Floor: Add yield-based pricing model. Use secant method instead of bisection for calibrating yield-to-maturity for bonds; slight effect on values, but faster. Callable bond: Add quadratic approximation, on-demand per instrument or according to ini file setting. Correct bug where time series that affect price were not always reported so parametric analyses were wrong in some cases. Speed up processing even without quadratic approximation through better organization of computations. Convertible bond: Add quadratic approximation, on-demand per instrument or according to ini file setting. Correct bug where time series that affect price were not always reported so parametric analyses were wrong in some cases. Correct order of precedence of market price and volatility in convertible bond (volatility should supercede market price). Removed Convertible Bond code that tested whether rate to grow tree was negative. It is possible for rate to go negative on historical simulation with (what else?) JPY. The variable which was being tested is actually never used, and it appears to do no harm to let the value go slightly negative. Equity: Notional in own or base currency computed using specified equity price, if any, otherwise price from database.
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Release Notes
Equity option: Solve for delta and volatility simultaneously where volatility series is specified. FRN: Correct bug in secant calibration in RM3.4.1.72 and before, where calibration could "exit early" without correctly setting variables, if the given marketPrice is so far out of range that calibration was impossible. This correction has caused numerous questions with respect to FRNs where the price is far too high. The problem can be demonstrated by getting position diagnostics and showing that the given value is out of range. With an older engine, the spread may be wrong in this case. Change default discount curve for FRNs from currency default curve to reference curve. Allow 0 accrued interest. Option on equity future: Solve for delta and volatility simultaneously where volatility series is specified. FX option: Solve for delta and volatility simultaneously where volatility series is specified. Swaption: Use secant method instead of bisection for calibrating yield-to-maturity for bonds; slight effect on values, but faster. New instrument types: UK Index-linked Gilt. =============================================== Market data loading: More efficient use of memory Equity data in generic format, including alternate identifiers. Fields that expect equity names can now specify alternate names using exchange and identifier type. Better error handling: error messages appear in marketDataErrors.xml and data loading continues even in the face of errors. New time series types: RPI Index Forward rates: Correct problem with backfilling forward rates: if one time series is backfilled from time A and the other from time B, with A > B, then for some part of the time period, the forward rate was computed with one real value and one backfilled value; in time series with dramatic changes over time, this could produce negative forward rates which produced errors. Change is to compute the forward rate normally starting at the later of the earliest dates of the time series, and backfill from that date. The change allows some analyses to run that otherwise wouldn't, but causes small differences in cases that ran despite differences in backfilling, where the backfilled time series was not wildly different from the non-backfilled time series. =============================================== All statistics: Allow output as percent of total stat in addition to output as percent of total PV or cell PV. Allow output as basis points wherever output as percent is allowed. New statistics: Risk attribution (incremental or standalone). Risk contribution. Beta.
RiskServer 3.4 patches 3.4.1.86 20020415 lw Corrected a bug in Historical Stress testing where interest rates moves were treated relative to discrete rates but the moves were taken relative to continuous rates. The bug could be seen
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by viewing simulation returns for historical sim on portfolio and checking against a one day Historical Stress test within the lookback period.. The numbers for the date in question should have tied out. They did not. 20020417 lw Corrected bug in Secant Calibration in RM3.4.1.72 and before. This affects ABSOLUTELY ANY INSTRUMENT OF ANY KIND WHATSOEVER which may be calibrated. In the secant calibration if the market price were so far out of range that we couldn't calibrate to it, we would return early rather than continuing to calibrate when we know we can't get the right answer. The trouble is that the spread wasn't necessarily set correctly on the early exit. The base value was wrong because it was calculated with the wrong spread (the last one used before we exited early), but the simulated values were right because they were calculated with the right spread. So the simulated returns were wrong. The case where this would occur is when the given market price is so high that even with the largest negative spread permitted (default would be -2000 BP), we still can't reach the right answer. In this case this is true of all the positions (as they are really the same position as far as I can tell). With a negative spread of -2000 BP, the market price is still only 98.9. The problem here may be that the market price was specified as a dirty price rather than a clean price, or perhaps the accrued interest of 6.222904 on a position with a current rate of 4.39 is in error, or maybe these positions are supposed to have a reset spread that is missing. Whatever the problem is, you will get normal simulated returns even with RM3.4.1.66 on these positions if you change the market value to, say, 97.8 instead of 100. The secant calibration error will never occur if the market price is not specified, or the market price is specified but is not too high. Even if the market price were too low, you wouldn't see the error. I think you can see the position diagnostics for a position in RiskManager, and that would show you the computed spread and the market price it came up with. If that doesn't match your market price, well, there's a problem with the market price or the accrued interest or both. 20020424 lw Added quadratic approximation to callables/convertibles. Makes difference of up to about 15% on VaR. This can be avoided by turning quadratic approximation off in the ini file. This is turned off by default in RM 3.4.1.86/87. Should not be turned on until release of 3.5. 20020429 lw Change default discount curve for FRNs from currency default curve to reference curve. 20020503 lw Corrected bug in Convertible Bonds where time series that affect price were not all reported (under some conditions), so Parametric analyses of Convertible Bonds were wrong in some cases. 20020508 lw Backfill forward rates: if one time series is backfilled from time A and the other from time B, with A > B, then for some part of the time period, the forward rate was computed with one real value and one backfilled value; in time series with dramatic changes over time, this could produce negative forward rates which produced errors. Change is to compute the forward rate normally starting at the later of the earliest dates of the time series, and backfill from that date. The change allows some analyses to run that otherwise wouldn't, but causes small differences in cases that ran despite differences in backfilling, where the backfilled time series was not wildly different from the non-backfilled time series. 20020508 lw Allow 0 accrued interest on FRNs. 20020513 lw Corrected bug that caused error when proxy series for equity had less history than the proxied series. 20020605 lw Corrected bug in Callable/Convertible Bonds where time series that affect price were still not all reported (under some conditions), so Parametric analyses of Convertible Bonds were wrong in some cases. DataTrans 3.4 Patches 3.4.1.83 Blank Header and Footer Lines - Fixed problem with blank lines in header and footer sections of the file that contain no data, but may contain white space characters such as tabs or spaces. These lines are now ignored like any actually blank line would be. Update RM3D - The file containing the invalid positions in the RiskManager interface did not contain line separators for RM2.3 version files. These files could not be loaded into Excel and would appear to be a
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Release Notes
single line of text. This fix adds the line separators to RM2.3 files. Other file formats, like RM3D, do not have this problem. Dynamic Configuration of Translators - Made the installation of translation packages easier, so that the DataTrans configuration does not need to be updated when a new translator is installed. The old way of configuring translators still works, but now any .XML files found in the DT_????/conf/service directory can be used to configure DataTrans with additional translators. These configuration files will take precedence over any commands in the DataTransService_cfg.xml file. To take advantage of this, you will need to download the new translator packages from the Integration web site. Any older translation packages you may have downloaded will still work, but you will need to manually update the DataTransService_cfg.xml file for them to be loaded. Corrected Interest Rate Futures - Moved VOLATILITY_SERIES field from "interestRateFuture" position to "interestRateFutureOption" where it should have been. This could potentially break someones file that included that field in an "interestRateFuture", but it was broken anyway and they would not have known it. 3.4.1.73 Accrued Interest for Bonds - For RM 2.3, removed rules governing the ACCRUED_INTEREST field in bonds and convertible bonds. The contents of the field are now simply copied; if the field is empty, an <accruedInterest> tag is not added to the resulting RML instrument. 3.4.1.68 Case Sensitive Field Groups - Field Groups within RM 2.3 files are no longer case-sensitive. For instance, "TAG", "tag", and "Tag" are all synonymous. 3.4.1.67 Amortizing Bonds and RM3D - RM3D translator updated to make the PAY_DOWN_SCHEDULE_LIST field optional for the amortizingBond position type. Performance Enhancement - Fixes problem with translation results being queued up until the entire job is finished. With the required patch to RiskManager, translation results will now be posted to the database as they are available from DataTrans. This should result in a significant speed improvement when importing positions into RiskManager. RiskManager 3.4 Patches: 3.4.1.38 MarketData Viewer Error. A system error errors in the MarketData viewer if there is no commodity data in the local market database. 3.4.1.37 Duplicate Positions Imported. Duplicate positions are sometimes imported as a result of a threading problem on import. The threads have been synchronized to correct the problem. 3.4.1.36 Stack Trace when viewing a Super Group whose Position Group has been deleted. A stack trace occurred when viewing positions from the row menu on the Position Group List of a Super Group whose Position Group had been deleted. The Position Super Group was not being validated from the Position Group List "View by" feature like it was on the Position View Manager. In addition, after validating, a new sql exception occurred, which has also been fixed. Display RiskSetting decay default value / bug fix for "None". Case I: The description label displayed for the default display now appears as the following (where it used to not display "0.94"): RiskMetrics default (0.94). Case II: The RiskSetting list page column called "Decay Factor" displayed the value as "00.94" rather than "0.94." This has been fixed to show "0.94." Case III: In addition, there was a non-critical bug when editing a RiskSetting. If the decay factor had been set to "None" (which is 1.00), then editing the RiskSetting showed the decay factor as "user defined" 1.00. I changed the comparison in the edit action class from a String comparison to a double comparison and now when the user edits a Risk Setting, "none" is correctly selected for the value of 1.00. Scheduled batch job fails to run. After running a sequence immediately, the scheduler removes the sequence job from the schedule.
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Errors in Credit Exposures Limits. In rare instances, extended credit exposure reports registered erroneous values for user-specified limits. More precisely, due to faulty mapping, rows in report tables were sometimes assigned limits that actually belonged to their descendants in hypothetical netting hierarchies. User does not have private/shared option on some imports. Permission box was present but invisible on several import windows due to client-side javascript processing that rendered those rows invisible. This has been corrected so that all import windows have the permission box. 3.4.1.33 Corrected number alignment for user-defined stress test editor. The current level and new level columns were "left" aligned, making it difficult to read the numbers. Those columns were changed so that they are right aligned and the decimal places now line up. Corrected Localized number formatting for Market Data \ Risk Setting lists. There was no number formatting per localization for the current level on the new Market Data List nor for the decay factor on RiskSettings. The number of decimals for number columns on list pages is now configurable. For example, the Position List page shows no decimals, Risk Settings show 2 decimals places for the decay factor, and the Market Data List shows 6 decimal places for the current level. The same decimal pattern is also applied in the search mechanism so that the results will return a partial pattern match for numbers. Corrected instances variables that were not allowed in action classes. Instance variables are not allowed in action classes since the instance is shared across all users. Incorrect Batch Schedule editing. Changed the Calendar instance to a GregorianCalendar in the Batch Sequence code because the Calendar object itself ignores the DST change. Indexes and Processed Indexes produced zombie entries in application objects table (SQL script). Triggers now correctly delete the application object table entries for deleted Indexes and Processed Indexes. This would not be visible to users. Processed Indexes given wrong application object id (SQL script). Stored procedure now assigns correct application object id. This id was not referenced, so the problem would not be visible to users. Some queries producing deadlock in SQL Server. Code added to detect SQL Server deadlock and attempt to retry query when deadlocked and terminated. Corrected Stored Reports Problem with Batch Jobs. Fixes problem in stored reports in which population from database occasionally results in lost reports because of java.sql.Timestamp comparison problem. Reports persist in database but are not loaded into memory. This fix prevents loss and will recover reports that were stored but did not show up in the list due to this problem.
32
Release Notes
RiskManager 3.4 New Features, March, 2002 Section Location

Admin Sub Menu: Active Sessions Admin Main Menu Admin Sub Menu: Account Policies
Feature
Active sessions row menu offers more options: edit, reset passw reset user (refreshes user lists from database and clears batch locks) User Hierarchy Manager: New tree representation for user hierarchy New Client information available to administrator
Admin
Batch Job
Editors Export File System Home Page
Batch Job Row Menu Editor Windows Main Menus per Section Import Main Menu Home Main Menu Home Top Link Import Main Menu: Completion Window
Run Batch Job immediately and Export Batch Job options New windows open at the top of the screen Export for Horizon Groups, Indexes, Market Groups, Position Groups, Processed Indexes, Risk Settings, and User Filters Prompt user before deleting file from the File system
New site map with improved access to all RiskManager function Market Dates moved into view (more easily visible) Improved import log file, displays line numbers Link to download position errors/import log file after import New import for Horizon Groups, Indexes, Market Groups, Posit Groups, Processed Indexes, Risk Settings, and User Filters
Import
Import Main Menu Position Sub Menu : Index Builder Pops Up On Completion Bottom Row of List Pages
Index Builder
New Index Builder: Manipulate multiple position sets consisting position groups or other indexes to create a custom weighted benchmark. Informs user of the number of objects deleted/duplicated Searching by all columns rather than just the name column Change lines per page from the list page
List Pages Market Data List
Market Data Top Link Market Data Main Menu Position Main Menu Position Top Link : Position List Page Position Main Menu : Position View Manager Position Main Menu :
New Market Data List displays long name with Security ID Advanced search allows drilldown on market, data set, and time series tags
Market Viewer
New market type - Volatility (see also market groups, stress tes Choose raw results vs. base currency results Change base currency display Import / Export Positions in RM3D format
Positions
New Position column called Position ID New position trees use XML/XSL technology for paging of long lists for complete scalability Engine dimension reserved tags are distinguished from custom
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Position View Manager
Position Groups
Position Sub Menu : Position Group Main Menu : New Position Group Editor
New Position Group Editor allows creation of groups of positio groups called Super Groups Allows complement of an entire group Filtering by Engine tags, which include position type, currency, yieldCurveFamily, longShort, and maturityDate () maturityDate can be specified by multiple ranges of years to ma Allows union of tags or groups in addition to intersection Allow exclusion of specified tags New blue folder icons indicate specified filters that define a grou
Preferences Top Link : Page Setup Tab Preferences Top Link : Report Setup Tab Preferences Top Link : Defaults Tab Preferences Top Link : User Profile Tab
Choose favorite login page Jump to favorite page immediately Choose display of main menus on top links versus main pages Choose button display as text, images, or form elements Edit Report Setup options Choose to hide legacy reports from the Create a new report window (Original Credit Exposure and Single Statistic Reports) Set a default permission item (shared or private) that will be util in newly created objects User Profile is now the default tab
Preferences
Processed Indexes
Position Sub Menu : Processed Indexes Report Main Menu : Create a Report Report Top Link : Row Menu, Generate Report Report Sub Menu : Stored Report List Stress Test Main Menu: User Defined Stress Test Top Banner Position Sub Menu : User Filter List
Processed Index List Allows user to process an index multiple times to achieve a snapshot in time of the rebalanced positions Allows user to set as active a single processed index per inde will represent the index in a report.
Reports Stored Reports
Engine dimensions distinguished from user defined tags in dimension fields by blue font color New report names, tool tip descriptions for report types "Information on Statistics" is displayed after running report, inclu number of invalid or expired positions Stored Reports are sorted by date Searching functionality added to user defined stress test Fill Down link is now always visible on user defined stress test Change base currency display Site Map link for more convenient access Top link menu system for improved navigation User Filter List allows filtering of positions according to owner
Stress Test Top Banner User Filters
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Release Notes
RM3.4 Changes to Swaption Asset Type

This note describes the changes made to the asset type Swaption in RM3.4. 1. 2. 3. 4. 5. A new yield-based pricing approach is offered, with the existing price-based formula still available for backward compatibility. For positions that have a specified underlying swap rate, a bug has been fixed. The start dates for both fixed and float legs, and the first coupon date for float leg, have been dropped. Existing positions with such dates specified are still acceptable but those dates are ignored. The first coupon date for the fixed leg, if specified, now has to be later than the option expiration date. This constraint was not in previous versions. The option expiration date is now taken as the start date for both legs. For positions which have no specified start dates for the legs (fixed or float), the first coupon amounts calculated will be different when the option expiration date is not on a regular coupon payment date. This in turn will alter the inputs to the internal option model (strike price, underlying price, etc.). Consequently, for such positions the PV and VAR results will be different. We now only handle European type Swaptions. Any existing American type Swaptions are still be acceptable but are treated as European type now, i.e. with the American type ignored.
6.
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RM3.3 Release Features

Mortgages Market Risk for Mortgages is now supported by RiskManager and DataMetrics (US Agency: Fannie Mae, Ginnie Mae, and Freddie Mac Pass-Throughs Conventional FRM, Balloons, I/Os, P/Os).
Credit Exposure and Limits Upgrade This extensive upgrade to the credit exposure model now allows users to dynamically define a netting agreement hierarchy, define and apply different sets of exposure limits, view credit exposure statistics as percentages, with/without exposure-level and horizon detail. Multiple Position/Benchmark Pairs With this powerful new feature, clients can select as many different portfolios and benchmarks as they want and run them in a single report. This is especially helpful for fundof-funds, or Asset Managers which want to assess different portfolios/strategies. Delta Equivalents Clients can analyze their portfolio's sensitivity to all underlying risk factors (time series). Simulation Returns Analysis Analyze historical or Monte Carlo simulation return vectors by any drill-down dimension. Result can be viewed and exported. This powerful report allows users to compare returns of positions, or any drill-down dimension. Historical returns are presented date-wise. Monte Carlo returns are presented by simulation trial number. This report exposes the returns that are fed into the RiskManager VaR statistics. Market Data Upgrade Several new features were added to give clients better visibility into their market data. a) Time series history report - using the same powerful reporting mechanism used through RM3, user-selected time series may be viewed or graphed. View and export prices of time series listed date-wise. b) Correlation/Volatility report - shows the vols & correlations for a user-selected set of time series. c) Exportable market data reports (XML/PDF/tab-delimited). This powerful report is built on a concept of Market Data Groups. Users can select any of the time series in their Market Database, build a collection of these time series, and generate historical data reports. Position Import Enhancements With these enhancements, RiskManager now has its most powerful and flexible support for the import of client positions. a) Powerful Delete features at Import time: Delete by Position Group/Tag Value, or use a new concept called "Auto Delete", whereby the user picks a tag dimension and RM3.3 removes old positions with tag values matching those being imported. Very useful for large institutions that manage many different portfolios. b) During import, the user can apply position tags in an ad hoc fashion. Miscellaneous
36
Release Notes
a) b) c) d) e) f) g) h)
As always, full migration for legacy RM3.x users Powerful position handling: group operations (duplicate/delete/tag) Report export to file (XML/PDF/tab-delimited), for both Batch and Interactive. Logging - better, more detailed logging of errors. Supports better troubleshooting. Notification of most recent market data update (on login and main page) More convenient/powerful position tagging mechanism. Administration of users and groups is easier to maintain. Users may control column width and the number of columns to display in a single viewable frame by using the expanded functions in "report setup".
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RISKMANAGER
Product Summary and Architecture
RM3 Architecture Diagram

Click for definitions Desktop browser Market Data (RMG/client)
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RiskManager Product Summary

Summary Description: RiskMetrics Group's RiskManager ("RiskManager") is an interactive risk application designed to compute and report on various types of Value-at-Risk statistics for a portfolio of financial instruments. RiskMetrics Group's RiskServer ("RiskServer") is the analytics engine that underlies RiskManager. If licensed as such, RiskServer can be called directly by an end-user choosing to bypass the RiskManager interface. The entire RiskManager/RiskServer System can be installed locally at a client's site. RiskMetrics can also host RiskManager for clients on an ASP basis (described fully under separate cover). Platform and Architecture: RiskManager is a multi-tiered client-server application with a web-based front end. The application is written in Java and utilized a JSP (Java Server Pages) framework to serve web pages to endusers via their web browser. The application is completely interactive and allows each user to explore portfolios, add positions, design reports and run risk analyses. User positions, reports and other settings are stored in a client's local SQL database. RiskServer is a server-based engine that accepts XML queries containing lists of financial positions and a description of desired risk analyses. RiskServer returns results via XML immediately after processing. RiskServer runs as a service on one or more TCP/IP ports. RiskManager uses RiskServer for all of its analytics by automatically creating XML requests for RiskServer based on the types of positions and reports specified by the end-user. RiskManager also parses XML results returned by RiskServer and displays them as standard or customizable formatted reports. If licensed as such, RiskServer can be accessed directly by sending an XML query directly to a port on which RiskServer is running. The specific dialog of XML used to communicate with RiskServer is called RML for which there is a fully published schema available on-line at www.riskmetrics.com. All RiskServer calculations are based on historical time series of prices, rates, yields, and volatilities, that are stored in a SQL database. Users may load their own data in addition to using time series provided by RiskMetrics Group through its DataMetrics service. RiskManager and RiskServer both include facilities to download DataMetrics data via the Internet (given appropriate proxy/firewall configuration) into a client's local SQL database. RiskManager and RiskServer are designed to be run on Windows NT or Windows 2000 platforms ("Workstations") only. Access to RiskManager for end-users is via Internet Explorer 5.5 or higher and can be from any platform. Access to RiskServer is via any standard TCP/IP socket connection and can be from any platform as well (e.g. Unix). RiskManager and RiskServer are designed to use Microsoft SQL Server 7.0 or SQL Server 2000 (strongly preferred) only as their backend database. RiskManager End-User and RiskServer Workstation Licensing: Each end-user of RiskManager requires their own unique User Name and Password to log onto the system. Users access the application itself by pointing their Internet Explorer browser to the address of a Workstation running RiskManager. Multiple end-users can log onto RiskManager at the same time provided that they each have a unique User Name. Concurrent use by more than one end-user logging on with the same User Name at the same time is not allowed. End-users with administration privileges have complete control over the creation, maintenance, and deletion of all User Names. RiskManager is licensed by defining the maximum number of unique User Names that can be created in the system. RiskServer is licensed on a per-Workstation basis. Multiple copies of RiskServer can be run on one Workstation at the same time under a single Workstation's license. Multiple copies of RiskServer running on multiple Workstations can be run in tandem with the use of a RiskServer's Director Service. RiskManager requires at least one copy of RiskServer to be running on a Workstation in order to operate; multiple RiskServers running on multiple Workstations enhance performance when more then one enduser operates RiskManager at the same time. RiskManager and RiskServer licenses are time-dependent. automatically terminate at a pre-defined expiration date. They are activated upon installation and
RiskManager and RiskServer require Microsoft SQL Server 7.0 or SQL Server 2000. Clients must license this software directly from Microsoft.
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RISKMANAGER
System Components
Primary Components of the System: Jakarta Tomcat: This is the component that processes the Java Server Pages that make up RiskManager and serves the resulting Dynamic HTML output to end-users via their browser. JavaScript is used within the HTML output to provide dynamic interaction. Java Applets are not used by the application. Jakarta Tomcat is produced by the Apache Software Foundation. RiskManager: This is the entire set of Java Server Pages that comprise the application itself. RiskServer: The underlying analytics engine. Written in C++ with a Java wrapper for TCP/IP socket connectivity. More then one copy of RiskServer can be run at the same time to serve multiple end-users simultaneously. Market Service: Controls the downloading of Market Data from DataMetrics via the Internet into the local SQL database. Also controls importing of client's own Market Data (if applicable) into the same database. Director Service: Allows routing of XML requests to multiple copies of RiskServer running on one or more PC Workstations. RMX Service: Allows automatic upload of RiskServer XML Queries. Central Control Service: Allows configuration and monitoring of RiskServers, Market Services, and Director Services. On-line Help: Complete Help and Tutorial System. RML Schema: Complete on-line reference for RiskServer XML Queries and Results. Required Components not included in the System: Microsoft SQL 7/2000: Stores all Market Data, Positions, settings, and user-data. Internet Explorer 5.5+: For end-user access to the RiskManager interface. Adobe Acrobat Reader: For end-user viewing and printing of PDF-based reports within RiskManager (free download from Adobe). Abode SVG Plug-in: For end-user viewing of SVG graphs within RiskManager (free download from Adobe).
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System Functions
General RiskManager Functionality, by heading: Positions: Allows end-users to import, export, create, edit, and delete positions and portfolios. Also allows end-users to define a complete position hierarchy based on manager, region, desk, strategy, or any other arbitrary tag. Market Data: Allows viewing and graphing of underlying historical time series. Preferences: End-user settings such as passwords, base currency. Stress Testing: Allows end-users to import, export, create, edit, and delete stress tests and scenarios for use in subsequent analyses. Reports: Allows end-users to design and run risk analyses based on customizable reporting templates. End-users can drilldown to any level of detail from total portfolio to subposition. Other RiskManager Functionality: Batch Mode: Allows scheduling of importing positions, downloading Market Data, running reports, and exporting results. Security: Allows end-users to control the access and sharing of positions, reports, and analyses by other end-users. RMClient: End-user application that allows remote automation of various RiskManager functions such as uploading and importing portfolios, running analyses, and downloading finished reports. RiskServer Analytics Functionality (standard and optional): Standard Position Types: Amortizing Bond, Amortizing Swap, Bond, Bond Future, Option on Bond Future, Bond Option, Cap, Cash, Cashflow Stream, Collar, Commodity, Commodity Average Rate Option, Commodity Double Barrier Option, Commodity Future, Option and Commodity Future, Commodity Option, Commodity Single Barrier Option, Convertible Bond, Equity, Equity Average Rate Option, Equity Double Barrier Option, Equity Future, Option on Equity Future, Equity Option, Equity Single Barrier Option, Floor, Forward Rate Agreement, Floating Rate Note, FX Average Rate Option, FX Double Barrier Option, FX Forward, FX Option, FX Single Barrier Option, Inflation Indexed Bond, Interest Rate Future, Option on Interest Rate Future, Money Market, Overnight Indexed Swap, Swap, Swaption. Optional Position Types: US Agency Mortgage-Backed Securities (models pre-payment risk). Risk Methodologies: Monte Carlo Simulation, Historical Simulation, Parametric Risk Settings: User-defined lookback windows,decay factors, base currency, and number of simulations. Risk Statistics
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RISKMANAGER
Delta Equivalents, Duration, Expected Shortfall, Incremental VaR, Marginal VaR, Position Count, PV (Present Value), PVBP (Present Value of 1 or more basis points), PVBP Delta, Stress Test PV, Stress Test PV Delta, VaR. Statistics may be run in absolute currency, as a percentage of market value, or relative to a custom-defined benchmark. Other Statistics: Volatilities and Correlations, Simulated Returns. Optional Statistics: Base Credit Exposure, Expected Credit Exposure, Maximum Credit Exposure (supports flexible netting agreement rules and limits management). Stress Testing: Historical Point-to-Point, User-Defined, Predictive Scenario Generation. Risk Factors: Interest Rates (included effects of spreads), Currencies, Commodities, Equities, Volatilties.
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RM3 Key Features I

Web-based application Zero-deployment (for IE5 browsers) ASP-capable Reduced tech support burden (installations, demos, data, updates) Allows IMMEDIATE client use Multi-user Multiple users can access same positions and reports Expose functionality according to user/user type Process once, view many Secure Multi-level Security model SSL (Secure Socket Layer) Encryption, Digital Signatures. Scalable Laptops to Enterprise servers Unlimited number of users and/or servers
44
RISKMANAGER
RM3 Key Features II

Data-on-demand caching Dynamic web-based Reports. Unlimited sets of Risk Assumptions used by reports. Unlimited Columns of mixed statistics. Unlimited Drill-Down dimensions. Unlimited Aggregation Levels. Multiple Date Calculations in single report - multiple risk settings. Extensive Suite of Customizable Reports. Presentation Quality PDF Report output. -Emailable Dynamic HTML Report output -Excel-ready text delimited report output. Single and Double Barrier Options. Credit Exposure Module (available at extra cost). Amortizing Bonds and Swaps. -Full Option coverage: on physicals, futures, exotics. -Vega Risk on all options. Volatility Smile data ready (data available at extra cost). -Overnight Index Swaps. -Inflation Protected Securities. Mortgage Backed Securities (available at extra cost).
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Setting up RiskManager3 PC Clients

RM3 Client PC Configuration
You can use a Microsoft Internet Explorer Browser to access the server hosting RiskManager 3. The Browser is the user interface to the application. Whether you are using an installation of RiskManager 3 and Risk Services on your own company network (your own LAN), or whether you are using the RiskManager 3 ASP Service from RiskMetrics Group (via the web site rm3.riskmetrics.com), you will need to set up each client PC to work as an effective client for RiskManager 3. This is straight forward. You need to make sure you have the appropriate version of Internet Explorer, and that two free plug-in modules for Internet Explorer are installed. You also need to make sure that the local network connection to the internet doesnt use web page caching via a Proxy Server. You will then be ready to use your own installation of RiskManager 3.0, or the ASP Service.
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RISKMANAGER
Internet Explorer Version and Plug-ins

The configuration required for a PC that will be a client of RiskManager 3 is very simple. The requirements are as follows: 1. You will need to be using Microsoft Internet Explorer version 5.0. To check the version you have installed on your PC, go to the Help Menu on Internet Explorer, and select About Internet Explorer. On the information panel that appears the version number will be shown. You should be looking for the version number to be 5.0 or greater. If you need to upgrade your Internet Explorer version, then please do so now. Netscape Navigator is not supported on RiskManager3 or any other Internet browser other than Microsoft Internet Explorer. 2. You will need the free Adobe Acrobat Reader Internet Explorer plug-in. This is required for the generation of reports. It can be downloaded for free from the Adobe Web site.
The URL for Acrobat Reader is: http://www.adobe.com/products/acrobat/readstep.html Alternatively, the front page (login screen) of RiskManager3 ASP site has a web link icon at the bottom of the screen which will take you directly to this page. You download the installer for Acrobat Reader, and run it to load Acrobat Reader and the Acrobat Web Browser plug-in required by RiskManager 3. Note that if you already have the Acrobat Reader installed on the PC, you should not need to install the browser plug-in. Please check with your local desktop support. 3. You will also need the free Adobe SVG (Scalable Vector Graphics) Plug-in for Internet Explorer. This is required for all graphing features in RiskManager 3 Reports and the Market Data Viewer. It is unlikely that your PC has this installed.
The URL for download of the SVG installer is: http://www.adobe.com/svg/viewer/install/main.html Alternatively, the front page (login screen) of RiskManager 3 has a web link icon at the bottom of the screen which will take you directly to this page. You download the installer for the SVG Plug-in, and run it to load the Web Browser plug-in required by RiskManager 3.
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PC Client Browser Settings

The next step in configuring a PC to be a client of RiskManager 3 is to avoid problems with web page caching. Your Internet Explorer can be set to cacheweb pages, that is use a version of a web page stored on disk or in memory, rather than go out to the actual web page and refresh the contents. On some company networks, this is set up directly on Internet Explorer, while in some cases a separate computer called a Proxy Server can be used to provide company wide web page caching and internet security. RiskManager 3 is a Web Application, where user interaction is via dynamically updated web pages, served by the Tomcat Application Server running the RiskManager 3 Java code. Caching of web pages can have a serious effect of the performance and usability of the RiskManager Application, because using cached versions of RiskManager 3 pages will mean that dynamic updates of the pages based on user interaction may not be passed to the users browser. They may just see an unchanging, cached version of the screen they are using. If a Proxy Server does cache pages from the RiskManager 3 Application Server, the following problems will typically be experienced by users: 1. Error 500 Messages: When using RiskManager3, you might be presented with an error screen stating that Error 500 has occurred. Typically an error log will be produced by the Application Server detailing exactly where in the Java code the error occurred. You will be forced to go back to the login page of the application, and login again. Market Data Viewer Errors: When using the market data viewer, a user may click on the market type drop down box, which by default is set to Equity. The user may then select Interest Rate Curve. When the screen reloads, the user still sees Equity. The application is working correctly, but the Proxy Server has forced the browser to reload the original page, and not the updated page from the Application Server which now says Interest Rate Curve.
2.
These kinds of behaviors make RiskManager3 unusable if interaction is routed through a Proxy Server. This is true for both for users of the external RiskManager 3 ASP and for users of internally installed RiskManager 3 systems if internal web pages are also cached by the Proxy Servers. For this reason it is important that interactions with RiskManager3 are not routed below, but please contact your local IT Support for information on this. These instructions apply to both users of an internally hosted (locally installed) RiskManager3 and users of the RiskManager3 ASP Service. Note that you may not be able to complete these steps if your local IT policies have restricted your access to the specific configuration options discussed below. In this case you will have to contact your local IT Support.
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RISKMANAGER
Browser Configuration Settings - Step by Step

1. The first step is to establishing if a Proxy Server is configured with your Internet Explorer browser. On the Internet Explorer: Select the "Tools" Menu Select Internet Options Select the "Connections" Tab Sheet Click the "LAN Settings" Button You will then be presented with the panel shown below:
If either the Automatically detect settings or Use automatic configuration script is selected, then you may well be configured to use a Proxy Server with your Internet Explorer. In this case, please contact your local IT Support to request changes to the Proxy Server configuration. If the Use a Proxy Server item is selected, then you are definitely using a Proxy Server. If you are using a Proxy Server, then you now need to tell Internet Explorer that for the specific web site or internal IP address being used by RiskManager 3 the Proxy Server should not be used. To do this: Click on the "Advanced" Button on the LAN Settings Panel (if it is disabled you will need to speak to your local IT support). The Proxy Settings Panel shown below will appear (IP addresses are an example!):
2.
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In the Proxy Settings Panel at the bottom there is a panel where you can list IP addresses and hostnames that should not be cached by the Proxy Server. For users of the RiskManager3 ASP,enter the values shown below (and illustrated in the figure above): rm3.riskmetrics.com;209.11.18.82 remembering to use semi-colons as the separator. For users of an internally installed (locally hosted) RiskManager3, you should enter the machine (DNS) name of the machine hosting RiskManager3, and the IP address of that machine. For example, if RiskManager3 is running of the server ABC1, with IP address 10.10.10.1, then the entry in the exceptions panel should be: ABC1;10.10.10.1
Press OK to accept the changes, and close Internet Explorer. On restarting Internet Explorer, the machine name or URL specified should not be routed through the Proxy Server.
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RISKMANAGER
Starting RM3
Risk Services Must Be Running
RiskServer Risk Services We can check to see if the Core Risk Service has been installed and is running. To do this, open the Services Manager tool on the PC (Start Menu, Settings, Control Panels, Administrative Tools, Services). Scroll down the list of services running on the PC. You are looking for an entry called RMG RiskServer.
Risk Services Monitor If your desktop is set up to display icons on the Task Bar, then you should see the following icon displayed in the tray:
This shows that the Risk Service Monitor has been installed and is running. If you don't see the icon in the tray, you can start the monitor from the start button. Select Start>Programs->RiskMetrics Group->RiskServer->RiskService Monitor shown below:
RiskManager 3 as an NT Service If you selected the option to Install RiskManager as an NT Service, then it should have started automatically after installation. It should also start automatically after the PC is rebooted. To check that RiskManager 3 is running, open the Services Manager on the PC (Start Menu>Settings->Control Panel->Administrative Tools->Services). Scroll down the list of services running on the PC. You are looking for an entry called RMG RiskManager (NOT RiskMetrics RiskServer this is the Core Risk Service).
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If the process status is Started, then RiskManager 3 Web Application Server is running. To stop RiskManager 3, in this tool you can right click on RMG RiskManager, and select the Stop option from the pop up menu. Starting the RiskManager3 WebServer Manually If RiskManager 3.0 was not installed as an NT Service, you will have to start it manually. From the start button, select: Start->Programs->RiskMetrics Group->Start RiskManager. This action starts the Jakarta Tomcat WebServer. The Apache Tomcat WebServer can be accessed by browsing to http://localhost:8080
Note: If you installed RiskManager 3 as an NT Service, the WebServer will automatically start as a Risk Service. A MS-DOS Command window should start, and various initialization messages will start to appear in the window. What is happening is that first the Tomcat Application Server is started, and then it loads the RiskManager 3 Java code. Once this process is complete, you should see the message System Ready in the console window.
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RISKMANAGER
To stop RiskManager 3, select the Stop RiskManager option from the start button under the RiskManager Section.
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Starting the RM3 Application

Starting RiskManager 3 Web Application With RiskManager WebServer started, we can now access the RiskManager 3 application using a browser. From the RiskManager Start Menu, select RiskManager 3 Web Link:
This action opens an existing browser session or starts a new browser session and inserts localhost url into the browser navigation line. Alternatively, in a browser, type the following: http://localhost:8080/RM30 .
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RISKMANAGER
Browsing to the RM3 Web Application Host

RM3 installations where the web application is not installed on the user's computer Open a browser window. Enter the RM3 web application host IP address or hostname followed by port 8080 and the directory RM30 into the url navigation. http://127.0.0.1:8080/RM30
We could have substituted a hostname such as http://rm3.riskmetrics.com instead of an IP address. In the url shown below, we are browsing to the RiskMetrics RM3 evaluation site.
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Logging into RiskManager3

The RiskManager Home Page allows the user to log in. RiskManager's Market database dates are shown on the front page. The username and password will be established by your administrator. If you forget your password, your Risk Administrator can reset the password.
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RiskManager Home Page

Once you log into RiskManager, you are located in the "Home Page". Your login id will be shown. Navigation to the message notification is the "envelope" on the far right. A link to the Help system is the Help? link on the right as well. The Help Resources opens a new window and browses to RiskMetrics website location. The Help system is not installed on your user PC.
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Home
Application Site Map
Home Stress Test Contact Information Reports Historical Stress Test Links Create a new report User Defined Stress Test Messages Delete reports Positions Delete stress tests Site Map Duplicate reports Create a new position Duplicate stress tests Import Generate reports Delete positions Export stress tests File System Report Setup Duplicate positions Import Stress Tests Horizon Groups Work with... Export positions Market Data Limit Sets Batch Jobs Import Positions Market Data Market Groups File System Position View Manager Preferences Import Positions Horizon RML Positions Guide Instructions Position Groups Groups Work with... Report Setup Risk Settings Limit Sets Index Builder Page Setup Import Stress Tests Market Groups Position Groups User Profile User Filters Risk Settings Processed Indexes Defaults Stored Reports Help User Filters Help RML Positions Guide
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Administration Specific Site Map
Admin User List Create a new user Send Messages User Groups User Hierarchy Work with... Active Sessions Batch Sequences Download Preferences Session Timeout System Information Tag Cleanup
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RiskMetrics Contact Information
Contact Information:
Questions? Comments? Problems? We would love to hear from you! You can contact us about RiskManager through the following ways:
E-mail: Phone: Online:
riskmanager.support@riskmetrics.com New York 1-212-981-7471 8:30am-6pm Monday - Friday, EST London +44 (0) 207-822-7156 8:30am - 6pm Monday - Friday, GMT http://www.riskmetrics.com
The RiskMetrics Group http://www.riskmetrics.com RiskMetrics is the worlds leading provider of risk measurement expertise. RiskMetrics products are a core component of the risk management process at over 5,000 banks, hedge funds, asset managers, insurance companies, brokerage houses, corporations and more than half of the worlds central banks. RiskMetrics RiskServer http://www.riskmetrics.com/clients/riskserver RiskServer, the most powerful and sophisticated risk management engine in the world, powers the all new RiskManager3. Built from the ground up with an incredibly flexible architecture, RiskServer can handle even the most demanding of processing tasks. RiskMetrics Research http://www.riskmetrics.com/research Research at RiskMetrics is responsible for the development and implementation of practical risk management methodologies. Research continues to enhance these methodologies; enhancements were published periodically in the Monitors and now in the new RiskMetrics Journal. RiskMetrics Education http://www.riskmetrics.com/products/education The management of risk has emerged as the key challenge for every participant in the financial markets. More than ever, risk management is at the heart of many critical decisions. As a result, the RiskMetrics Group recently launched an educational initiative to teach financial practitioners about the fundamentals of risk management.
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Links
The RiskMetrics Group RiskMetrics is the world's leading provider of risk measurement expertise. RiskMetrics products are a core component of the risk management process at over 5,000 banks, hedge funds, asset managers, insurance companies, brokerage houses, corporations and more than half of the world's central banks. RiskMetrics RiskServer RiskServer, the most powerful and sophisticated risk management engine in the world, powers the all new RiskManager. Built from the ground up with an incredibly flexible architecture, RiskServer can handle even the most demanding of processing tasks. RiskMetrics Education The management of risk has emerged as the key challenge for every participant in the financial markets. More than ever, risk management is at the heart of many critical decisions. As a result, the RiskMetrics Group recently launched an educational initiative to teach financial practitioners about the fundamentals of risk management. RiskMetrics Research Research at RiskMetrics is responsible for the development and implementation of practical risk management methodologies. Research continues to enhance these methodologies; enhancements were published periodically in the Monitors and now in the new RiskMetrics Journal. RiskManager3 Resources RiskManager Resources offers extensive product support from within the framework of a comprehensive table of contents, subject index, and keyword searching. RML Position Import Specifications Guide The RML Position Import Specification Guide provides complete tag definitions, field decriptions, and examples of RiskManager's RML position tags. To view the reports, you will need to install the SVG Reader and Acrobat Reader.
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Messages
Left clicking the 'Envelope' in the upper right-hand corner will take you to the Message List Left click the message to view the contents.
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Administration
Administration and Security
RiskManager3 supports multiple users, each possessing their own login and password. Each individual user maintains their own private world of positions, reports, and stress scenarios unless they are part of a group and they specify various objects to be shared. Other members of the users' group may share objects with the user as well. These shared objects are "read-only" and used as-is. The shared objects may also be copied so that a user may modify a "private" copy for their own use. Objects What are RiskManager3 objects? A position is an object to RiskManager3, so is a report, a previously-run report, and a stress test. Each of these objects may be private or shared. 1. 2. 3. 4. 5. 6. 7. 8. 9. Positions Position Groups Reports Stress Scenarios Risk Settings Horizons Limits (Credit Exposure only) Market Groups Stored Reports
Objects that are always private: 1. Batch Jobs
Administrator A special user login is an administrator. The administrator is really a group that can be shared by any number of users. Administrators have special privileges that other users do not have. Special Administrator Privileges 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Groups A RiskManager3 group is a collection of users. A group membership allows sharing of RiskManager3 objects such as positions, reports, a previously run report, and stress scenarios. Multiple groups are supported as well as the ability of a group owning another group. By using groups, the Administrator can create a sharing structure for objects in RiskManager3. Users A user is an individual with permission to log into RiskManager3. A user may be a member of one or more groups. A special user may be a member of the administrator group. When a user is part of the administrator group, they would have all the privileges as listed above on this page. Create and delete users. Create and delete groups. Define group/user hierarchy. Assign or change group status of users. Setting global session time-outs. Ability to switch login into another account. Creating batch sequences of user's batch jobs. Scheduling and running batch sequences. Setting DataMetrics connection details. Cleaning up unused tags or tag values of all users. Viewing Session information of all users logged in. Viewing system version details.
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Administrator Home Page

Main control panel for an Administrator group user of RM3. Left click Administrator - on right (circled). Administration Screen (2nd image below).
Administration screen - shows a list of all users.
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Creating Users
Creating a New User
Select create new user from the Administration Everyone Users task bar on the Administration screen
Administrators can create the new user's name, password and group membership.
For more information on Groups click on the related topics
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Editing a User Profile

Selecting "Administration" from the Administrator's home page brings you to the user list page.
Left click a user name and select "Edit User" to edit the users' profile
User names and display names can be assigned and changed by the administrator. The email address is used for notification of completed batch jobs. Group membership can be assigned. For more information on groups see the related topics:
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Group assignment - The user can be assigned to a group. Everyone in the group can share the positions and reports.
The administrator can annotate the user list show below with a description field.
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User Group Maintenance

User Group Maintenance
Starting on the Administration Page. Left click the task bar and select User Group Maintenance from the Task bar menu.
The User Group Administration screen lists all groups in the RM3 system
Administration - User Groups Task Bar Menu items
1. 2. 3.
Create a new Group. Send Multiple Messages. View User Hierarchy.
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Create or Edit a Group

From the Administration User Group menu task bar, select "Create New Group"
Select existing group to edit
User Group Editor Screen 1. 2. 3. 4. Enter the name of the group and a display name. Enter a password and email address notification. Choose from the current group list and select +Add (circled). If groups are selected here, you are establishing a hierarchy for sharing objects. Any users assigned to the group you are creating with this screen will also share objects with the groups you add below (circled). Add a description for the new group (circled).
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Group Structure Example

Using the groups created in "View User Hierarchy", we can visualize the structure and user hierarchy:
Example - Group Structure 1. 2. 3. Admin is root group Subgroups are assetmgt and trading The subgroup trading has a subordinated subgroup Fixed Income
Note - Admin does not have to be the root group (click to expand topic). Example User Structure Admin\assetmgt User gwatson is a member of admin and assetmgt Admin\trading Fred Jones, futures, Joe Malone, and trader are users with this level of group membership. Admin\trading\Fixed Income Fred Jones and Joe Malone are not only members of trading, but they are also members of the subgroup Fixed Income.
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Send Multiple Messages

Administrator Send Message to Multiple Users
From the "View Session Information" screen, administrators may send messages to multiple users. Left click the task bar and select "Send multi-instant messages".
Choose the users to be sent a message in the "Send Message" screen. The active users will appear in the left selection box (circled).
Clicking "select all" and "+Add" will move these user names to the "Send To:" box -- see circled area below:
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Message entry follow the procedure as done with single users.
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User Hierarchy Commands

User Hierarchy Commands
From the Administration Task bar, select "User Hierarchy Commands.
Or, from the Administration User Group Maintenance menu task bar, select "User Hierarchy Commands".
Security User Hierarchy Command Screen 1. 2. All users and groups are listed on the left in the master list The user hierarchy structure is on the left. Administrators can "build" any structure they wish. Users and groups can be dragged about on the screen until the desired structure is found.
Hierarchy Example In the screen shot below, we have created three users 1. Manager 2. User1 3. User2 We have created a group called the Risk Group
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Structuring a group
Objective: We want the manager to see both user's portfolios and risk. However, we would like each user to see only his own portfolios and risk. Continuing our example of creating a group hierarchy (started in "View User Hierarchy"). Next, we drag the Manager, User1, and User2 into the Risk Group.
At this stage, each of these users share positions and reports equally. Create a new group called Management and assign manager to that group. Create another Group Fixed Income Funds which User1 manages. Create yet another Group Equity Funds which User2 manages. Drag the groups Management, Fixed Income Funds, and Equity Funds into Risk Group. Drag User1 under Fixed Income Funds. Drag User2 under Equity Funds. Drag user Manager under the Management group. Finally, drag the group Management from the left under the Fixed Income Funds group and the Equity Funds Group. Refresh the tree. You should now see the following hierarchy: 1. 2. 3. Risk Group has two group members Fixed Income Funds and Equity Funds. Fixed Income Funds has a user User1 and a group Management with user manager. Equity Funds has a user User2 and a group Management with user manager.
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Work with ..
Administration - Work with ..
From the task bar select Administration Everyone Users->Work with .. The user may choose to inspect: 1. 2. 3. 4. 5. 6. Active Sessions - Find out what users are logged into the system. Batch Sequences - Schedule user batch jobs and market data downloading. Download Preferences - Setup the DataMetrics download account information and fire-wall Session Time-out period - Set and re-set the user time-out period. System Information - System software version (RiskMetrics software Engineering). Tag Cleanup - Erase and flush unused tags. Note - any positions using a tag will keep those tags in the database.
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Active Sessions
Administrator Session Information
From the Administrator screen, select "View Session Information" from the pull-down selection.
Users that are logged in are displayed along with the following details: 1. 2. 3. 4. User name Time and date logged in. Time and date last accessed. Session duration time.
Left clicking a user name will display two command functions: 1. Send the user an instant message. For addition information on instant messages, see the following related topics:
2.
Terminate the user's session. Termination will require confirmation as requested by a dialog box.
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Administrator Send Message to Users

Administrators may broadcast messages to users. Send Message function is from Session Information screen and left clicking a specific user and selecting the function send message. Messages can: 1. 2. 3. Allow a response. Users may need to communicate back to the Administrators to allow them time to clean up their work before shutdowns. Disallow a response. Start a chat session with a user.
Sending a private message to a user - Clicking on the hyperlink (circled) of users previously sent a message allows a private message to be sent. A dialog box will appear as shown below:
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Private messages are logged in the "Send Message" screen (shown above).
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Administrator Log Off Multiple Users
From the Administration Screen, select "View Session Information" and then left click the task bar. Choose "Logoff multiple users".
Each user logged on the system will be listed. Admin users can select: 1. 2. 3. 4. 5. Logoff - Logs off selected users, conformation is required (a dialog box will appear). Logoff All Users - selects all users for Log Off, conformation is required (a dialog box will appear). Select All - checks all checkboxes for log off. Select None - de-select checkboxes. Hide Checkboxes - to return to the active session information screen.
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Administrator Allow / Disallow logins

From the Administration Screen and then "View Session Information", select "Allow / Disallow logins" from the task bar.
A dialog box appears with two choices: 1. 2. Allow logins. Disallows logins - only Admin group users will be able to log in. All other users will get the following message when attempting to log in.
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Batch Sequences
Admin Batch Sequences
Batch jobs will not run until they are scheduled. Only users who are members of the Administration group can schedule batch sequences to run. All users may run batch jobs remotely by using the RMClient utility. This utility gives users the ability to run batch jobs at any time without contacting the administrator. The administrator only needs to be involved to export the sequence for the user's use in the RMClient utility.
Administrators Only - Batch Sequences and Scheduling - from the admin users "Administration" Screen, left clicking task bar and selecting Batch Sequences.
On the Batch Scheduler screen, sequences can be created and saved. should be selected to schedule a new job.
Create a Batch Sequence
A new window called Batch Sequence Definition allows the user to select how and when the task is scheduled.
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The top left box requires the user to select a schedule time.
The default selection is Do not schedule now. By clicking the Edit key the user will select: 1. 2. 3. 4. immediate daily weekly monthly
B The top middle box contains the Batch Job list The administrator will see all jobs that were created and the login ID of the creator. The administrator can schedule one or more of these jobs to run.
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C The top right box shows other task sequences available to the user which can be included in the sequence that is being created. (i.e. to create nested task sequences). (Note: Circular references are prohibited)
Recommended: The administrator should prepare a sequence Run Immediately to make sure the tasks complete as anticipated.
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Admin Batch Market Data Download

Only Members of the Administration Group may download data from RiskMetrics DataMetrics Servers. Users can also import their own market data. For more detail, see the topic Batch Job Client Data Import. The DataMetrics download must first be configured. See the topic Administration Download Preferences. This sets up the DataMetrics username, password, and proxy server settings. The admin batch wizard screen is shown below. To download RiskMetrics data, merely select the "yes" radio button for downloading DataMetrics market data.
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Download Preferences
Administration Download Preferences
Administrators are the only users able to download market data from RiskMetrics. This prevents multiple downloads of daily prices. The Download Preferences screen provides the access details of: 1. 2. 3. RiskMetrics DataMetrics account name. This username and password is issued by RiskMetrics and is the same as your RiskMetrics website username and password pair. If you don't know the password contact RiskMetrics. Firewall authentication details. MarketServer machine and query port.
The Market Server IP is the machine IP where the Market Service is running. The Market Server port is found in the Central Control Client Administration screen. Administrations can run the central control client program on the computer where RiskMetrics RiskManager components are installed and left-click the market service. From there, they select the Service Configuration Tab. The query port (circled) is entered into the Download Preferences screen shown above.
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Session Timeout
Administrator Session Timeout
Select Administration - Work with ... Reset the session time-out period in minutes. RiskManager tracks the time of last access. Dormant sessions will be timed out and users must login again.
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System Information
Administration System Information
From the Administration screen, selecting "Work with ... System Information" lists details of the user's computer. If software components of RiskManager are installed, they will be listed as well (shown below). RiskMetrics Engineers will need to know much of this information on a diagnostic call. In particular, they will need to know the version number of the installed software (circled).
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Tag Cleanup
Administration Position Tag Cleanup
From the Administration task bar, select Position Tag Cleanup. This function is for administrators only and serves as a means to remove unused tag names and (or) tag values. Users should see then only see currently used tag dimension in their report layout managers and tag navigation.
A clean-up tag selection dialog box will appear:
Remove Unused Tags and Values - (Recommended for complete cleanup) scans the current portfolio list for any unused tags and tag values. RiskManager will remove any unreferenced tags or tag values from all positions. Remove Unused Values only - (Recommend for users adding tag values manually) Scans the position list for any unused tag values. This process will retain tag names even if they are not referenced.
Choosing ok requires a yes to a confirm dialog.
Lastly, a report of the tag cleanup action will appear:
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Positions
Selecting Positions from the Home Page
Moving the mouse over the word "Positions" on the home page describes the function. Clicking Positions takes you to the Position section of the application.
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Working With Positions

Select "Working with Positions" which is underlined at the top of the "Positions" page. The default view is "All Positions". Users can limit this list down to a manageable size by creating a position view or creating a custom position group. Users can also search the name field for specific positions. In the example below, the page size was limited to 10 lines in the "user preferences". There are 47 pages of 10 line pages (470 total positions).
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Working with Positions - Commands

Command List 1. Create a new position 2. Delete Multiple positions 3. Duplicate Multiple positions 4. Export Positions 5. Import Positions 6. Position View Actions 7. Refresh Positions 8. RML Position Guide 9. Work with Position Groups
Position View Actions is the navigation to all groups and tags.
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From the Position Screen, Select Position View Actions All user-defined Position Groups will be listed under the "Position Groups" + sign. All user defined tags will be listed under "Tags" + sign. To select a view or subset of all positions, left-click any item listed under "Position Groups" or "Tags". Only the select tag dimension or defined position group will then be shown in the Position Screen. If "All Positions" is selected, then every position in the database will be shown.
Left click any expanded object to control change your view. 1. 2. 3. Change Permissions Delete Positions Duplicate Positions - this powerful feature allows the user to replicate groups of positions and re-label the tags on-the-fly.
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4. 5. 6.
Export Positions - allows the user to export positions out to the users local computer. Tag Positions View Positions
You can keep both the position view navigation up at the same time as the position view. See Position View Action and Control.
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Position View Action and Control

Position view and a control panel View positions & resize the window. Select "Position View Actions" and resize the window to sit side-by-side with the position view. When you highlight the position group or tag dimension (in the window on the right), the left window will refresh with that set of positions. Like this: Position View Position View Control
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Import Positions
Importing Positions
From the Navigation tab, left click the pull-down menu and select Import Positions. Choose "Import Positions" from the function list.
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Browse to your position file. Using the file browser, select the position file you wish to import. You can import from either your local computer or from the user file system. A - Browse your local computer's file systems. B - Browse your RiskManager user file system. Choose notification - check the box if you would like to be sent a message or an email upon completion of the import process. Message and email notification preferences are set in Preferences\User Profile. Choose a permission type for positions: 1. 2. Private allows only the current user to view the positions Shared allows positions to be viewable by all members of the users group
Choose the file format type: 1. 2. 3. XML is an RML formatted position file. Tab is a tab delimited flat text file (RM2.3 compatible). Comma is a comma delimited or csv flat text file (RM2.3 compatible).
Choose an import action on existing positions in your positions database:
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C - Delete Group or Tag Dimension prior to import. If All Positions are selected, then all existing positions are flushed from the database prior to the import of positions. If a group or tag dimension is selected, then all position matches to that selection will be deleted prior to import. Use the position view action navigation to choose the groups or dimensions. D - Auto Delete - Smart delete a tag dimension. The pull-down list are all the current tag dimensions in the system. Let's say you choose the drill-down dimension Advisor. RiskManager will examine your imported positions an only delete the positions which match the Advisor values being loaded. If the imported positions contained positions with two of ten possible advisors, then all positions in your database of the imported two will be deleted before the new positions are loaded. This feature allows the user to selectively load positions while retaining others. This import method reduces the need to flush all positions. Optional action on imported records (positions). E - Expanding the selection allows the user to enter a list of Tag Dimensions and Values on-thefly. In the example below, we want to import the positions and assign them to the Portfolio=Super Fund. In addition, we want to assign the imported positions the Advisor=Alan Greenspan. Press +Add after each entry to build the list.
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Export Positions
Exporting Positions - selection
From the Navigation bar, left click the underlined heading "Working with ... Positions".
Choose "Export Positions" from the function list.
Choose the position group or tag dimension to export. You may export all positions to a file by selecting "All Positions" under Position Groups:
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You can export a single tag value across all positions: By using the Position Viewer, you can select the exact set of positions you wish to export. If you have created positions groups, you can select one of these. If you want to export one tag dimension value across all positions, you can select the tag value underneath the tag name. Example: Export all Amortizing swaps only. Under the tag dimension "Asset Type", choose the tag value "Amortizing Swaps":
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Exporting Positions - saving RML on file system

Select Export: Once you have chosen the position set to export and selected "Export", you will see a familiar Windows dialog box confirming where you want to download the position set to your file system:
Browse your file system to place the data in a directory: Your web application may be local or remote but you will download your position data to a file in the same fashion. Browse your local network file system to place your position data file:
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Sample RML export: The RML output is the Risk Markup Language designed for Risk Systems by the RiskMetrics Group. It is an XML syntax with tag and content data. For a complete description of RML, see the RiskMetrics website online interactive schema.
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Editing Positions
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Create New Position

Create New Position
From the main position screen, pull down the menu from clicking "Working with Positions". Select "Create New Position"
Next, select the asset type from the drop-down menu:
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Create Position Content

Fill out the details of the position. RiskManager will pre-fill the contents with an example. Black Field Labels are required. Light Field Labels are optional. Select save when done filling out the form.
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Editing Position Details

Select Position to Edit
Moving your mouse over the position list will highlight various position lines.
Left clicking any position line will pull down a menu. Select Edit to open the contents of the selected position.
RiskManager will bring up a form of the contents. See "Create Position Content".
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Editing Detail Lists in Positions

Custom Bucket List Every asset type has the RML subtag "custom bucket list". Using the position editor, we can view and edit all the custom tag dimensions for the specific position.
EXAMPLES OF ASSET SPECIFIC DETAIL LISTS
Put and Call Schedules Some asset types have put and call schedules.
Ignore FX Risk checkbox Every position has a checkbox "Ignore FX Risk". If the box is checked, the FX Risk will be ignored in reports.
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Custom Bucket List Edit

Editing the Custom Bucket List Expanding the custom bucket list we can view all the current tag dimensions:
Editing the Custom Bucket list allows you to view all the tags associated with this position.
Selecting Edit in the custom bucket list, you can view all the tag values that are set for this position. Edit the + sign to expand the tag name and you will see all the tag values as shown below:
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Tag Maintenance What is a Tag Dimension? What is a Tag Name? A tag name or drill down dimension is a user defined aggregation for risk. It is a category name or text label that represents a collection of other drill-down dimensions or individual positions. The position level is the smallest level of detail. Examples of Tag Names
Region Business Unit Sector Strategy Portfolio Manager Fund
What is a Tag Value? A tag value is one of many user defined dimension values. If a position does not have a tag value set within a report asking for a specific drill down dimension, the position will be listed as "unspecified". Examples of Tag Values - for the Tag Name Strategy
Pairs Relative Value Aggressive Small Cap Risk Arbitrage Interest Rate Arbitrage
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Tag Example Tagging requires some advance planning. It is necessary to anticipate the reporting needs and create useful labels at the security level, for the purposes of attribution and sorting. Some examples might be Business Unit, Trading Desk, Strategy, Geography, Portfolio, etc. and are shown in Table 1. Table 1 Portfolio Manager Business Unit Country Trading Desk Treasuries Brian Fixed Income USA Government Bonds
Account Number 3429981-C Asset Type bond Tagging can also be used to indicate paired transactions or to create a composite instrument from several sub-instruments or cashflows. For example, if three option positions have been taken in conjunction with each other, in order to create a cap, a floor, a collar, etc., they can be tagged with an ID. This will allow the risk of the three to be grouped together on reports. Another use of tags is for integration with another system, for example an accounting or performance measurement system. Results for a security, an industry sector, an account, etc. can be loaded into a database with data from other sources only if they have keys which will facilitate matching. The actual tagging can take place using the RM3 interface (editing by hand with the GUI), but it is much more efficient to automate the process to take place during the automated loading of positions, in XML. The tags in table 1 have been applied to a bond, and the example of a tagged bond in XML is below: Tagged Bond Example <positions> <bond> <positionName>Bond</positionName> <notional>-2000000</notional> <currency>USD</currency> <discountCurve>DEM Govt</discountCurve> <coupon>5</coupon> <couponFrequency><semiannual></semiannual></couponFrequency> <maturityDate>20100716</maturityDate> </bond> <groupCustomBucketList> <groupCustomBucket> <customDimensionName>Asset Type</customDimensionName> <customBucketValue>bond</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> <groupCustomBucket> <customDimensionName>Portfolio</customDimensionName> <customBucketValue>Treasuries</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> <groupCustomBucket> <customDimensionName>Country</customDimensionName> <customBucketValue>USA</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> <groupCustomBucket> <customDimensionName>Manager</customDimensionName> <customBucketValue>Brian</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> <groupCustomBucket> <customDimensionName>Account Number</customDimensionName>
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<customBucketValue>3429981-C</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> <groupCustomBucket> <customDimensionName>Trading Desk</customDimensionName> <customBucketValue>Government Bonds</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> <groupCustomBucket> <customDimensionName>Business Unit</customDimensionName> <customBucketValue>Fixed Income</customBucketValue> <positionNameList><positionName>Bond</positionName></positionNameList> </groupCustomBucket> </groupCustomBucketList> </positions>
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Add Tag or Tag Value

Tag Maintenance Edit all tag dimensions of your position from the Custom Bucket Definition. Within a position edit and editing the Custom Bucket Definition, you can:
Add a new Tag Name Add a new Tag Value
To add a Tag Name, choose "Add Tag" from the choice.
You can Add risk dimension names (tag names) or tag values
Tag Name - risk dimension category name (ie. "trader name") Tag Value - another possible value or member of the risk dimension (ie. Joe Jett)
Expanding a tag name (+) plus sign will reveal all currently defined tag values To add a Tag Value, left-click the tag (will be highlighted) you wish to add another value.
A dialog box ill appear to allow you to key in the text of the tag value.
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Call Schedules Edit

Editing and Adding Call Schedules Expand the Call or Put Schedule Section of the Position Editor
Empty call schedule list shown. Choose "Add" to edit call dates and prices.
Enter the dates and prices of each call provision. Use the drop-down calendar if desired.
The call schedule list will be shown after adding or editing.
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Delete Position
Deleting a Single Position
In the Position screen, select a position to delete. First, mouse over the position. The position line selected will be highlighted.
Next, left click the position line to delete and select "delete".
Deletes must be confirmed by the user
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Run Position Detail Report

Single Position Detail Report
In the Position screen, select a position to run a detail report. First, mouse over the position. The position line selected will be highlighted.
Next, left click the position line to obtain position details and select "Run detailed report".
The Report Viewer will come up and the user can open up various levels of detail. Option positions will show "greek" sensitivities as shown below. 1. 2. For more information on the report viewer, see "selecting reports from the home page". Position detail reports may be exported to excel sheets or pdf format.
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Duplicate Multiple Positions

Duplicate Multiple Positions
Select "duplicate multiple positions" from the pull-down menu of the task bar. This function allows the user to duplicate one or all positions in a screen. "Duplicate all" makes a copy of all positions in the positions database for your user id.
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Delete Multiple Positions

Deleting Multiple Positions
Select "delete multiple positions" from the pull-down menu of the task bar. This function allows the user to delete one or all positions in a screen. Delete all deletes all positions in the positions database. Use delete all with care!
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Position Group Maintenance

Position Group Maintenance
Position Group Maintenance functions: 1. 2. 3. 4. 5. Creating a new position group Deleting multiple groups Tag Maintenance Selecting a Position View Refresh Position Groups
Edit or delete a Position Group Mouse over the group name line item in the table and left click the highlighted choice to edit.
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Creating a Position Group

Select "Create Position Group" from the task bar of the Position Group Maintenance Screen.
The position group editor will show all available tags you can select from.
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Create a new group which slices into your tag dimension structures. Carve out what group of positions you want to run a risk analysis on. For example, we will create a new group of the Financial Sector under the Industry Sector Description tag. Select the tag "Industry Sector Description" and choose the tag value "Financial". You can choose as many tags and tag values as you wish. In this example, we will just choose one.
Choose the tag values
The "Financial Sector" group now appears on the list
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Deleting Multiple Position Groups

Select "Delete Multiple Groups" from the Position Group Maintenance task bar. This function will allow the wholesale deletion of one or more position groups at a time.
Delete Position Group Functions
Delete - Deletes position group if checked on this page only. Delete All - Deletes all position groups in the database (all pages). This function completely flushes the position group list from the system. Select All - Inserts checks in all boxes. Select None - Unchecks all boxes. Hide Checkboxes - Removes check boxes from screen. You are now out of the delete multiple function.
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Index Builder
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Index Builder Overview

Index Builder Overview
Index Builder functionality within RiskManager v3.4 The index builder functionality in RiskManager v3.4 enables users to build custom benchmark portfolios (or indices) against which relative analysis such as tracking error of a portfolio may be computed. The custom benchmark can be created by combining user-defined groups of positions (or from benchmarks defined in the system) and weightings. For example, an index such as 30% USD Government Bonds, 30% DEM Government Bonds, and 40% USD Corp Bonds can be automatically constructed and rebalanced within RiskManager. The only requirement is that positions should be loaded (and tagged) in the system. Index building decisions revolve around positions, filtering for specific criteria amongst your tags, and choosing weights. Examples of Indices that can be built: 1. 2. 3. 4. S&P 500 ex Tobacco 50% Frank Russell 2000 and 50% S&P 500. US, Japan, Germany, and UK Governments weighted and filtered to specific maturity sectors. JP Morgan Global Bond Index Euro Zone only.
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Creating an Index
To create an index you start in the Positions Screen and select work with Index Builder.
This will take you to the Index Builder Screen. From within this screen choose to create an index and bring you to the main Index Editor to structure your index.
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Selecting the Index Components
There are three windows within Index Editor: 1. Upper Left Hand Corner Screen. a. Index Name: any arbitrary name that you wish to give. b. Amount: The index creator will weight the positions within your index to add to this Present Value amount. This amount is not critical as reports have the ability to scale the index to your portofolio. Best to keep this to a present value of say 1 million. c. Currency: This is the currency of the Amount above. d. FX Hedge: If your portfolio is hedged against FX risk (but the hedge positions are not brought into RiskManager) then the FX hedge functionality may be used. For example 0% means there is NO hedge and 100% means FULLY hedged. e. RiskSettings: The RiskSettings here is picked up from your Report RiskSettings and is used by the Index Builder to take the prices of individual components. For example if someone creates an end of month Index then the RiskSetting would reflect that analysis date. If on the other hand the benchmark is revalued daily then RiskSettings of latest in database should be used. f. Permission: This is sharing protocol and if shared it is available to other users in your group. Upper Right Hand Corner Screen. a. This screen lets you choose the components of the new index. These components can be user defined position groups, tags, default engine dimensions, or pre-existing indices. These are the main building blocks for your index. b. Use Filter allows you to filter all users or only your positions. Bottom Screen. As you choose the index components, it will appear here on the window. The fields are as follows: a. Position View: this displays the names of the selected component b. Calculate As: Enter the value as Weight (for example 30 for 30%) or Amount (3,000). Note 1: Amounts - The Index Builder will always take Amounts as fixed amount contributing to the total Present. Note 2: Weights - RiskManager adds all the weights and then calculates the percent allocated to each. For example if we had two entries and we wanted 30% to the first component and 70% to the second component, then 3 and 7 entries would have the same impact as 30 and 70 etc.
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Note 3: Amounts and Weights - RiskManager will first allocate Amounts and then use weights for the rest. For example if our Present Value was 2,000 and we had three component where the first component has amount of 1,000, the second component had weight of 3 and third component had weight of 7 then the present value would allocate 1,000 to the first component, 300 to the second component and 700 to the third component. a. Currency: Not currently used b. Date: Not currently used c. Remove button at left hand corner is used to remove any components that you do not want in the index.
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Index Components and Weights

The screen below shows and example that is created an index with PV $1,000,000 consisting of : 40% Dow Jones Euro Stoxx Equities; 10% JPI Bond Index Belgium; 10% JPI Bond Index Denmark; 20% JPI Bond Index Germany; 20% JPI Bond Index France This index is created with my default risk settings and this takes the latest yields in the example database. Further, all the positions are zero percent FX hedged. Fixed Income Note: be alert when re-using calibrated fixed income position sets. The prices and accrued interest for each bond are set in the bond positions for a specific date. This will cause RiskManager to match the market value (proceeds) of these bonds by applying a parallel shift in the yield curve. Re-using old positions for a later date will use current yield levels but still apply a parallel shift to match the old prices in the positions. The best solution is to use a generalized Risk Setting that uses the previous day's closes. In this case, positions with prices and accrued interest should use the previous night's bond prices. This method is best for daily production processing. For hand imported or ad-hoc importing of positions, apply a specific date in a Risk Setting to the index. In addition, use the date in the index name to help identify the calibration date. Equity Note: Equity positions and indices will pick up the latest prices in the database since individual equity time series are supported. Previous closing prices are picked up automatically. You must use a specific Risk Setting date for as-of calibration. Remember to save the index!
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Processing an Index
Saving your Index will take you back to the main Index Builder Screen and you should see your Index that you just built. Note that under Processed column there is No.
The No processed indicates that all you have done is defined the index structure but RiskManager has not built it. To run this you need to click on the index name and process the index. Once an index is processed, the custom index positions can be exported. Reports can reference processed indices or the exported and re-imported position sets.
You also have choice here to export the index query if you wan to see the index build. In this case you could change the index parameters within XML and then re-import the index. Once you have the index built this will appear under your index tags within RiskManager and may be used to run analysis. In defining a report where an account's risk is measured against your custom index, select the custom index as the 'benchmark' and your managed account as the 'base positions'.
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Fixed Income Index Example

FI Custom Index Example
Objective 1. 2. 3. 4. Use the JP Morgan Global Bond Index - calibrated to prices of 20 Mar 2002. 50% US 7-10yr sector 50% UK 7-10yr sector Scale the custom index to USD 100 million (base reporting currency).
Index Building Exercise 1. 2. 3. 4. 5. Import the JP Morgan bond index of Mar 20th into RiskManager with a portfolio name. Create a position group that filters and carves out USD 7-10yr sector. Create a second position group that isolates the UK 7-10yr sector. Create a Risk Setting for March 20, 2002. Fire up the index builder and select each group with a 0.5 weighting. The index should reference the Risk Setting and fix the total investment to USD currency and 100 million PV. The total number in the PV amount can be anything since it is scaled to the investment account PV (for March 20th).
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JP Morgan Bond Index

Import the 'COMP_GLOBAL.csv' file 1. Browse to the csv file. 2. Select JPMorgan GBI import format. Data-Trans will take care of reformatting the raw spreadsheet into the correct position format. 3. Assign a tag to reference the whole index. You can carve out the pieces later.
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US 7-10 YR Position Group

Create a Position Group - 'UST 7-10yr BenchMark' 1. Select the country - US
2.
Select the Maturity Sector - 7-10yrs
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3.
Carve these positions out of the JPM Global Bond Index portfolio. Don't forget to click SAVE!
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UK 7-10yr Position Group

Create another position Group 'UK 7-10yr BenchMark'
Repeat the steps as done with the US position Group except filter the UK country instead of US. Make sure the position group has the proper name (if you duplicated the us group).
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Create a RiskSetting for Mar 20

The Bond Index file contains bond prices for March 20. We can to calibrate the custom index with March 20th yield curves. When we calibrate, we know exactly what prices and dates we are dealing with. In our example here, we are specifying a specific date.
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Build the 50-50 Custom Index

Use the Index builder to construct the custom index: 1. 2. 3. 4. 5. 6. 7. 8. Open the +Subgroup folder on the right and expand the +Position Group folder. Select the US 7-10yr Benchmark position group. Select the UK 7-10yr BenchMark position group. Set the weights to .5 for each. Set the Amount to $100,000,000. Set the Currency to USD Set the RiskSetting to Mar 20, 2002 (for discussion of RiskSettings and Indices, see 'Index Componets and Weights'. Name and save the index.
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Process the Custom Index

Left click the index and select 'process'. Processing takes the index structure you have specified with filters and weights, applies it to the positions and scales a new object of positions to match your structure. Once processed, the index can be used in reporting or exported in a variety of formats.
The index listing will show the Risk Setting and 'Yes' for Processed.
Now you may use the index or export it.
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Import a Processed Index
A processed index can be imported into the system and subsequently exported in xml, RM3D, and RM2.3 formats. The only reason you might do this is if you needed to see the actual scaled position list that comprises the custom index. Select ...work with Processed Indices and select import. Give it a portfolio name to represent the custom index.
Position View Manager will show the named portfolio after import. In our example, on import, the portfolio name '50% US 50% UK 7-10yr 100MM' was given.
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Detailed - Exporting an Index Query
From the Index Builder screen, we can left-click our custom index and export the Index Query. Advanced uses who use RMX Server for their batch processing can utilize this format in an automated fashion.
Next, we can save the query structure to a file for examination:
Once the query is in a file, we can examine the xml structure.
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Detailed - Index Query Structure

The Index query (<indexBuilder> defines the entire block of xml) consists of three sections: 1. 2. 3. Valuation Specification = <valuationSpec> (this is the Risk Setting). <indexList> <positionGroupList>
Valuation Spec - for our example, we specified March 20, 2002 as the calibration date
indexList - for our example we specify two position groups at 50% weight each. Each position group does the country and maturity sector filtering.
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positionGroupList - contains the actual detailed list of bond positions (with price + accrued interest) that comprise the position groups. A production system would match up the index description with the position groups prior to handing off to RMX Server for processing. The position lists are raw and unprocessd. The positions are not scaled.
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Detailed - Exporting a Processed Index

From the screen ...working with processed indices, we can export the processed index. The xml file consists of a list of all bond positions. This file of positions contains the scaled notionals.
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Fixed Income Euro Example

Fixed Income Euro Example
Objective 1. 2. 3. 4. Use the JP Morgan Global Broad Bond Index - calibrated to prices of 02 Feb 2002. 80% Euro Zone 20% Excluding Euro GR KR PL ZA Scale the custom index to EUR 100 million (base reporting currency).
Index Building Exercise 1. Import the JP Morgan Broad bond index of Feb 2nd into RiskManager with a portfolio name. a. This step is the same as in the 'Fixed Income Example'. b. We import an excel file (tab delimited) in the JP Morgan Bond Index format directly into the application. Create a position group that filters out only the bond portfolio and EUR currency bonds. Create a second position group that filters the bond portfolio excluding EUR currency, and four countries: a. GR - Greece b. KR - Korea c. PL - Poland d. ZA - South Africa Create a Risk Setting for Feb 2, 2002. Fire up the index builder and select each group and assign an 80% and 20% weighting. The index should reference the Risk Setting and fix the total investment to EUR currency and 100 million PV. The total number in the PV amount can be anything since it is scaled to the investment account PV (for Feb 2nd).
2. 3.
4. 5.
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Position Group of EUR Bonds Only

Step 1 In creating a position group, we first must isolate the portfolio of the JP Morgan Index bonds under Tags\Portfolio list we have 'jpmgbi broad 20020201'. This is the portfolio we imported the raw index constituents.
Step 2: Select the Currency by selecting EUR from under the Engine Dimensions.
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Position Group Excluding EUR and 4 Countries

Step 1 In creating the 2nd position group, we again first isolate the portfolio of the JP Morgan Index bonds under Tags\Portfolio list we have 'jpmgbi broad 20020201'. This is the portfolio we imported the raw index constituents.
Step 2: We need to Filter currencies, this time excluding all but EUR. Note that we have chosen the exclusion filtering option.
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Step 3: Lastly, we need to exclude four countries: Greece, Korea, Poland, and South Africa. Under Tags\Country we choose to exclude the four countries (ZA not shown in screenshot).
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User File System

User File System Management
Each user has their own file system directory in the RiskManager database (RMDB). In the directory structure below, we are focusing on user FuturesOptions. 1. Directory tree Home which serves as the users root directory. 2. Under Home is a named location our position file labeled "bondFutures.xml". 3. The directory tree can contain multiple folders and files as necessary to organize the user's personal import files.
Left Clicking the Home directory will show a menu of file system commands.
File System Directory Commands: 1. Create a new file - allows the user to create a new named file item. The user can then upload a file to this named item. Until the user uploads to the file, the file item is empty.
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2.
Create a new folder - sub-directories can be created to organize your work.
3.
Upload data to this directory - browse on your local computer to upload the position or market data.
Left Clicking a file will allow users to select a file already in the user file system, delete, rename, and export from the user file system to as local computer file.
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Market Data
Selecting Market Data from the Home Page
Mouse over Market Data will describe the function Clicking "Market Data" will bring you to the Market Data Viewer section of the application.
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About the Market Data Viewer

The Market Data viewer enables: Graphing daily prices (or rates). Viewing actual prices or rates of historical time series in the RM database. You can also examine multiple series within each asset group:
FX Rates Equities Commodities Fixed Income
The time series listing within each asset group will depend on your specific DataMetrics data subscription. If you have added your own time series to the RM database, these series will appear on the asset lists. Note: At this time, the graphical or tabular data view comparisons can only be done within each asset group. For example, you cannot compare an FX rate with an Equity index. You can export the actual data to two separate spreadsheets and merge them in a spreadsheet. Data Transformations and Operations: Dates of View - Change start date and end date of data views. Normalization - Chart actual prices/rates or a normalized view starting at 1.0 (note: normalized data can only be exported from export graph and choose txt format). Base Currency denomination - For FX only, view data by (base currency per currency) or (currency per base currency). Note: Basis - Differentials between two markets must be calculated externally from RiskManager and imported as a time series. Examples are cash/futures differentials (i.e. T-bonds) and commodity delivery point differentials (i.e. Natural Gas or coffee).
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Viewing Data Step by Step

Select "Market Data" from the task bar at the top of the screen. Follow the steps A-G to view market data:
A Choose a Market Sector. Valid sectors are: 1. Commodity 2. Equity 3. Foreign Exchange (shown) 4. Interest Rate Curve Note that you can search the top 20 or the whole market sector list for a match. Searching Equity exchanges can be done by CUSIP or long name. B Choose a time series from the list and select "Graph" C The chosen series name appears in the "graphed time series list". D Graph start and end dates can be changed by over-typing or through the pull-down calendar. Note that the date conventions use your Microsoft Regional Settings. European dates will appear as Day/Month/Year. North American dates will appear as Month/Day/Year.
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E Normalize check-box. Unchecked will show actual values of prices or yields. Normalize will scale the left value points to 1.0. This is useful to compare markets of different scales. F Changes to settings D and E can be applied by selecting "Update Graph" (grayed out in example). G Generate Table creates a report of the selected market data. Selecting "Hide Settings" will enlarge the graphing area.
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Market Data Table Report

Selecting "Generate Table" on the Market Data Screen will create a data report.
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Market Data Graphs

Market Data graphs are interactive. Moving the cursor updates the Date and Value (circled upper left).
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Market Data Scatter Chart

Choosing "Graph" from the Market Data table report allows the user to chart the data observations of one series versus another. Selecting "Customize Graph" on the scatter chart allows the user to choose the data pair.
"Customize Graph" Dialog box to choose the time series pair. 1. 1st time series x-axis. 2. 2nd time series y-axis. 3. Depth - (dates are the only choice). 4. Select Root - Choose all roots for all dates in the market data viewer selection or just one date.
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SVG Graphics
RiskMetrics has chosen Adobe's SVG Graphics technology platform. Graphics can be saved to a file, zoomed, and panned.
Right-clicking the graph area enables the SVG (Scalar Vector Graphics) interaction. The menu functions are described in the SVG Viewer Help.
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SVG Viewer Help

Help on using the Adobe SVG Viewer for Windows
Navigating Panning: Hold the alt key and click-and-drag with the mouse to pan an SVG image. When the scroll lock is enabled and the Adobe SVG Viewer has the focus, the arrow keys may be used to pan the image. Zooming: Hold the control key and click to zoom in at the mouse pointer location. Hold the control key and click-and-drag to select a region to zoom into. Hold the control and shift keys and click to zoom out. You can also use the zoom commands in the context menu. Using the contextual pop-up menu Right-click in the SVG image area to open the contextual pop-up menu. This will reveal the commands and options for interacting with the SVG image. Links: If you bring up the context menu over a link, you can choose Open or Open in New Window to activate the link. Quality: You can disable the Higher Quality option to cause the SVG image to display more quickly, but with lower quality. Animations: Use the Pause command to pause an animated SVG image. The pause command changes to the Play command when the animation is paused. You can use the Mute command to disable any sounds embedded in the SVG image. Searching: Click Find to open the find dialog box. Here you may enter the text you want to search for, make choices about matching whole words only, case, and the direction of the search. The find command works with transparent, obscured, or moving text. The entire document is searched, regardless of how much of the SVG is currently visible. The result of the search is highlighted, and panned (but not zoomed) into view. Copying: The Copy SVG and Save SVG as commands let you copy the SVG image to the clipboard and save the image to a local file. The copy command places the SVG as it currently appears onto the clipboard in both Unicode and raster formats. Note that this differs from the Save SVG as command, which makes a copy of the original SVG file. When text is selected, the copy command changes to Copy Selected Text. For more information on the Adobe SVG Viewer, please see the SVG area at Adobe.com.
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Preferences
Selecting Preferences from the Home Page
Mouse over Preferences will describe the function. Clicking Preferences will take you to the section of the application.
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Preferences - Instructions
Checking the instruction box on the "Instructions" tab of Preferences shows all the instructions within the application. Later dialogs will appear on-the-fly to allow the user to turn off these instructions.
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Password
Preferences Password Tab
Selecting the password tab allows the logged in user to change his/her password. The password can also be reset by the administrator.
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Lines Per Page

Preferences - Lines per page
From the "lines per page" tab of preferences, you change the number of displayed lines per web page. The default is 20 lines.
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Email
Preferences - email notification
RiskManager users can change their email notification under the "Email" tab.
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User Profile
User Profile
Users may choose a display name. Notification Users can be notified by email by checking the box and entering their email address. Users can be notified by a message within RiskManager. Messages are viewable in a web page. Group Members Users are reminded of other users in their group.
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Base Currency
Base Currency
Base currency default for reports and display are chosen from the drop-down menu.
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Stress Testing
Selecting Stress Testing from the Home Page
Mouse over "Stress Testing" will describe the function. Clicking "Stress Testing will take you to the scenario analysis section of the application.
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Create Stress Test Scenarios
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Import Stress Test

Importing Stress Scenarios
Left click the task bar "Create Stress Test Scenarios" and select "Import Stress Tests".
Choose the file format type: 1. 2. 3. XML is an RML formatted stress scenario file. Tab is a tab delimited flat text file (RM2.3 compatible). Comma is a comma delimited or csv flat text file (RM2.3 compatible).
Choose an import action on existing positions in your positions database: 1. Rename Duplicates - Stress Scenarios are unique only by the stress test name only. If you have 5 stress tests that perform a present value of a basis point sensitivity analysis, and just name the scenarios PV01, you will have PV01, PV01 (2), PV01 (3) ... PV01 (5). To improve on this, construct a more descriptive name "PV01 USD Yield Curves". Ignore Duplicates - If you have 10 stress tests all named "PV01", the first stress scenario will be imported and the last 9 will be ignored and skipped. Overwrite Existing - (Recommended) All exact duplicates of the stress test scenario name will be replaced by the imported stress test. If you have 10 stress scenarios all name "PV01", the last test will be the only imported scenario. RiskMetrics has noted this method is used by 90% of all RiskManager clients. It avoids deleting carefully saved stress tests but flushes existing tests upon an import of a new scenario with the same name. Delete All - Flushes the database and replaces the stress test database (shared with the position database) with the imported file. This method insures that old tests are flushed, but this method is unforgiving in that stress tests stored in the database will be erased!
2. 3.
4.
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Browse to the stress scenario file on your workstation file system:
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Or from your RiskManager user file system:
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Create User Defined Stress Test

Creating a User Defined Stress Scenario
Read more about stress testing in the RiskMetrics: Return to RiskMetrics: The Evolution of a Standard document. Select "Create new" from the task bar and pull right to select "User Defined Stress Test".
Compose the User Defined Stress Event. In this example, we will compose a user defined stress scenario that shocks the Single A Industrial High Grade Corporate yield curve by +25bps. Follow the red letters in the screen shot below to create this stress test.
A Choose a 1. 2. 3. 4.
Stress Scenario name and Market Sector. Valid sectors are: Commodity Equity Foreign Exchange Interest Rate Curve
B Choose a curve 1. Commodity 2. Interest Rate Curve Choose an Exchange for Equity and Market for FX. For equities, search by equity name or CUSIP (recommended). C Choose a time series from the list. These are the time series to be shocked in the stress scenario. Highlight the time series and choose +Add. D Select a time series change operator style. Choose a style that most series will be changed by in the the stress event. You can change the method later, time series by time series, if necessary.
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Change by abs - You can change a time series by it's price or yield. Note: it is recommended that you check the "before" and "after" to see that the desired change is being made. For yields, 0.01 is 1 basis point. For Gold, a change of 1 is one dollar per troy oz., but for Comex Silver, a change of 1 is in cents per pound. For more information on commodity price units, see notes on commodity prices stored in the RiskManager Database. Change by % - Change each time series by a percentage amount. Set to - Reset the current value of the time series with the value in the stress test definition. If you want to set gold at $300/oz., use set to 300. E Simple or Predictive Simple changes the specified time series only and in isolation. If the current portfolio or group of positions maps to the time series, then the change is applied. If not, it is ignored. For example, if you shock Crude Oil but don't have it in position, a simple stress test modifying the price of oil will have no effect. Predictive changes the specified time series by the amount defined and changes all other time series based on the correlation matrix. The time period from which the correlations are calculated are defined in Risk Settings. F Save - stores the stress scenario in the database. It can be edited for change or deleted later.
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Create Historical Stress Test

Creating a Historical Stress Scenario
Select "Create new" from the task bar and pull right to select "Historical Stress Test".
Compose the Historical Stress Event.
Enter a descriptive name for the event. Enter the starting date. Enter the ending date.
A Historical stress scenario values the portfolio or group at the beginning date and the end date. In reports the "Stress Test PV Delta" statistic will show the change in market value due to the event. The report can break down the market value changes across all your drill-down dimensions. For additional commentary and to clear-up any confusion, please see the topic "Historical Stress vs Historical Simulation" The example below defines the 1st half of 2001. A Stress Test PV Delta statistic in a report that references this historical stress event will show the P&L for the first half of 2001.
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Edit Stress Test
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Fill Down Entries

Fill Down Entries
Fill-down is a bulk change application of a stress entry change. EXAMPLE: Building a PV01 of USD Government Curve Create a User Defined Simple Stress Labeled "PV01 USD Govt. Select "Absolute Change" and "Simple". Select "Interest Rates" Select USD Govt Highlight all USD Govt Curve Time Series +ADD Appearance before any changes
Note that the amount fields are all 0.00 Enter 0.01 in the first amount field (one basis point)
Select "Fill Down" from left clicking the task bar USER DEFINED STRESS TEST
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Highlight the first time series line you want to fill to the bottom of the screen
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Applying Fill Down Entries

Select "Fill Down All"
Appearance of the Stress Scenario after filling down. Now, every entry has a 1 basis point increase in yield. Note that the fill down applies to the "change" column (change style).
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Remove Stress Entries

Removing Stress Entries
On the stress test editor page, mouse over the time series and select delete
Mousing over the time series will highlight the entry line. Left click and select "Delete Entry"
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Edit Stress Test

Changing or editing stress entries: Pull down Change Style - Absolute, Change by &, and Set-to Value In this example, we have changed the change style to % Current and New Levels - reality check for before and after the percentage change.
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Duplicate Stress Test

Duplicating Stress Tests
Mouse over the stress test name, left click, and select duplicate.
Duplicate Stress Test Confirmation dialog box. The user must confirm duplication. This action cannot be undone.
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Duplicate Multiple Stress Tests

Duplicate Multiple Stress Tests
Select "Duplicate Multiple" from task bar "Create Stress Test Scenarios".
Duplicate Multiple Stress Functions 1. 2. 3. 4. Duplicate - Deletes stress scenario if checked on this page only. Select All - Inserts checks in all boxes. Select None - Unchecks all boxes. Hide Checkboxes - Removes check boxes from screen. You are now out of the delete multiple function.
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Delete Stress Test

Deleting Stress Tests
Mouse over the stress test name, left click, and select delete.
Delete Stress Test Confirmation dialog box. The user must confirm deletion. This action cannot be undone.
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Delete Multiple Stress Tests

Delete Multiple Stress Tests
Select "Delete Multiple" from task bar "Create Stress Test Scenarios".
Delete Multiple Stress Functions 1. 2. 3. 4. 5. Delete - Deletes stress scenario if checked on this page only. Delete All - Deletes all stress scenarios in the database (all pages). This function completely flushes the stress tests from the system. Select All - Inserts checks in all boxes. Select None - Unchecks all boxes. Hide Checkboxes - Removes check boxes from screen. You are now out of the delete multiple function.
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Report Statistics
Report Statistics
RiskManager has many statistics that can form the columns of risk reports. Many report layouts such as: 1. 2. 3. Customizable table report. Multi Risk Setting report Risk Attribution report
can accept statistics as their columns or add-on columns in the case of the Risk Attribution report. In this section we describe various statistics in-depth.
Bond Equivalents Duration, underlying PV, and Contributional Duration Delta Equivalents Underlying Present Value Definitions Future Value Statistic Definitions Generalized PVBP Statistic
In addition, we have a case study that puts various statistics into practice.
Fixed Income Statistics in reports.
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Underlying Present Value

Underlying Present Value Summary The Underlying Present Value statistic is very similar to our usual Present Value statistic in that it defines a measure of worth for an instrument or portfolio. However, the current Present Value statistic for some two-legged instruments can often be zero or near zero. While this is correct, it does not always provide an intuitive sense of the size of a position. For some instruments one leg may be much more important than the other, in which case we can take the present value of only that leg as indicative of the true size of the position. We call this the Underlying Present Value. For single-legged instruments Underlying Present Value will simply be the same as Present Value. For some two-legged instruments we cannot ascertain which leg is more important. For now we will leave these instruments alone and simply define Underlying Present Value to be identical to Present Value as well. As we get feedback from clients concerning this new statistic we may revise some of our definitions for these instruments. Underlying Present Value is useful as a standalone-statistic as well as in conjunction with the Underlying Duration statistic defined in a previous specification. Note that Underlying Present Value is not meant to be a sensitivity measure but rather a value measure.
Definition of Underlying Present Value by Asset Type

Amoritizing Bond Amortizing Swap Bond Bond Future - same as PV. - PV of the fixed leg only (including sign based on pay/receives fixed). - PV of the bond only. Ignore the settlement payment leg if it is present. - PV of the bond leg only, ignoring the futures payment. This can be computed exactly as marketPrice*numberOfContracts*notional/100.0. Note that sometimes the user specifies a marketPrice and other times it is left blank in which case RiskServer computes one. - PV of the bond leg only, ignoring all optionality. This can be computed exactly as underlyingPrice*numberOfContracts*notional/100.0. Preserve sign if optionType=call, reverse sign if optionType=put. Note that sometimes the user specifies an underlyingPrice and other times it is left blank in which case RiskServer computes one. Also note that Underlying PV is not meant to be an exposure statistic, which is why delta is ignored for option positions. This is important to ensure the Underlying Duration statistic (which uses Underlying PV) is correct. - PV of the bond leg only, ignoring all optionality and settlement. This can be computed exactly as (underlyingPrice+accrued_interest)*notional/100.0. Preserve sign if optionType=call, reverse sign if optionType=put.
Bond Future Option
Bond Option
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Cap Floor Collar Cash Cash Flow Commodity
- unknown at this time and waiting further research. For now simply set to PV. - unknown at this time and waiting further research. For now simply set to PV. - unknown at this time and waiting further research. For now simply set to PV. - same as PV. - same as PV. - PV of the commodity only. Ignore the settlement payment leg if it is present.
Commodity ARO Commodity Single Barrier Commodity Double Barrier Commodity Option - PV of the commodity leg only, ignoring all optionality and settlement. This can be computed exactly as underlyingPrice*numberOfUnits. Preserve sign if optionType=call, reverse sign if optionType=put. Note: I assumed that underlyingPrice is the spot price of the commodity. If this is not the case (i.e. it actually represents the forward price at optionExpiryDate) then we need to discount the value above by the appropriate yield curve to get a true PV of the commodity leg. Commodity Future - PV of the commodity leg only, ignoring the futures payment. This can be computed exactly as marketPrice*numberOfContracts*numberOfUnits. - PV of the commodity leg only, ignoring all optionality. This can be computed exactly as underlyingPrice*numberOfContracts*numberOfUnits. Preserve sign if optionType=call, reverse sign if optionType=put. - PV of the convertible bond only. Ignore the settlement payment leg if it is present. - PV of the equity only. Ignore the settlement payment leg if it is present.
Commodity Future Opt.
Convertible Bond Equity Equity ARO Equity Single Barrier Equity Double Barrier Equity Option
- PV of the equity leg only, ignoring all optionality and settlement. This can be computed exactly as underlyingPrice*numberOfShares. Preserve sign if optionType=call, reverse sign if optionType=put. Note: I assumed that underlyingPrice is the spot price of the equity. If this is not the case (i.e. it actually represents the forward price at optionExpiryDate) then we need to discount the value above by the appropriate yield curve to get a true PV of the equity leg. - PV of the equity leg only, ignoring the futures payment. This can be computed exactly as marketPrice*numberOfContracts*numberOfShares.
Equity Future
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Equity Future Opt.
- PV of the equity leg only, ignoring all optionality. This can be computed exactly as underlyingPrice*numberOfContracts*numberOfShares. Preserve sign if optionType=call, reverse sign if optionType=put. - unknown at this time and waiting further research. For now simply set to PV. - PV of the bond only. Ignore the settlement payment leg if it is present. - PV of the forwardCurrency leg only. Ignore the settleCurrency leg.
FRA FRN FX Forward FX ARO FX Single Barrier FX Double Barrier FX Option
- PV of the optionCurrency leg only, ignoring all optionality, settlementCurrency, and settlement. This can be computed exactly as underlyingPrice*notional. Preserve sign if optionType=call, reverse sign if optionType=put. Note: I assumed that underlyingPrice is the spot price of the option currency. If this is not the case (i.e. it actually represents the forward price at optionExpiryDate) then we need to discount the value above by the appropriate yield curve to get a true PV of the optionCurrency leg. - PV of the bond only. Ignore the settlement payment leg if it is present. - PV of the interest rate leg only, ignoring the futures payment. We do not have a marketPrice field, but if we did the value we need would be computed as marketPrice*numberOfContracts*notional/100.0*time_factor, where time_factor is a fraction defined as term(in months) divided by 12 months. For example, if the term is 3M then the time_factor would be 0.25. - PV of the interest rate leg only, ignoring all optionality. This can be computed exactly as underlyingPrice*numberOfContracts*notional/100.0*time_factor, where time_factor is a fraction defined as term(in months) divided by 12 months. Preserve sign if optionType=call, reverse sign if optionType=put. - PV of the underlying bond leg only. Ignore the initial deposit leg if it present. - same as PV. - PV of the mutual fund only. Ignore the settlement payment leg if it is present. - PV of the fixed leg only (including sign based on pay/receives fixed). - unknown at this time and waiting further research. For now simply set to PV. If we knew the Swap was fixed for float than we could use the same rules as for Overnight Indexed Swaps and Amoritizing Swaps. But this would not help with fixed/fixed or float/float swaps. - unknown at this time and waiting further research. For now simply set to PV.
Inflation Indexed Bond Interest Rate Future
IR Future Option
Money Market Deposit Mortgage-Backed Sec. Mutual Fund
Overnight Indexed Swap Swap
Swaption
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Implementation Issues
For options there is always the question of what the underlyingPrice represents. Is it the the current spot price of the underlying instrument, or the forward price of the instrument at the option expiry date. In theory, for the purposes of the Underlying PV statistic we want to ensure it is the current spot price, or otherwise discount it to the present. However, in practice these values will be similar.
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Future Value Statistic

Future Value Statistic Summary - RM3.6 Release This specification defines a new RiskServer statistic <futureValue> that is analogous to the current statistic <presentValue>. The purpose of this new statistic is to estimate the value of the portfolio at a time in the future with respect to the current <analysisDate>. This feature is not the same as simply resetting the analysis date into the future for three important reasons:
1.
<analysisDate> is an absolute date. <futureValue> will be relative to that date and thus roll each day as <analysisDate> is changed (or if <analysisDate> is tied to the Market Data Database). Reports using the <futureValue> statistic are therefore applicable on any date.
2.
Setting <analysisDate> to a future date simply ages all positions but not the market data itself. For example, a 9-month bond might would appear as a 3-month bond if the <analysisDate> was moved forward by 6 months, but the rates used to discount the bond would be current 3-month rates. We really want to use 3-month forward rates implied in 6 months from now. This is currently done in the Credit Exposure Module and thus we will be using this section of the analytics.
3.
Cashflows occurring on <analysisDate> are ignored as are positions that mature on that date. The change in <presentValue> that might be observed by increasing the <analysisDate> by only one day could be large if on that next day there was a coupon payment (which would get dropped) or the position itself matured (in which case the <presentValue> would drop to zero). One optional extension to <futureValue> will be to allow instruments that mature, and cashflows that occur, on a future date to remain valued.
There will be two main uses of this statistic:
1.
For Credit Exposure computations it is desirable to see the anticipated value of a transaction if markets remain unchanged while the position simply rolls down the curve as it ages. This data will be important for margin-like calculations as requested by a client (to be specified in a subsequent document). It represents the base scenario (i.e. no market data changes) of a credit exposure calculation at some horizon.
2.
The difference between <presentValue> as of today and <futureValue> as of tomorrow is a direct indication of theta. This will provide hedge-fund clients with a much-needed statistic for their option-based positions.
RML Extensions
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In terms of RML, the <futureValue> statistic should be an exact clone of the <presentValue> statistic (all fields mean the same thing, including those that return results as a percentage of <presentValue>) with two additional tags: <horizon> - this specifies a single term in day-month-year notation such as 1Y, 1D, or 3M. It is a required field. The term itself refers to calendar days and should be treated in an analogous fashion to the horizon terms used by Credit Exposure. - this optional, unary tag indicates that the user wishes to value, rather then ignore, all positions and cashflows that occur at the horizon. Interim cashflows between the analysis date and the horizon are always ignored. Only those falling exactly on the horizon are saved.
<valueTodaysFlows/>
RiskServer Analytics Details
The Future Value statistic is best described by example: Given an <analysisDate> of 19 Aug 2002 and a horizon of 30D, RiskServer should age the portfolio to 18 Sep 2002 (30 calendar days) and compute new present values based on forwardlooking (implied) market data. The results of this should be identical to those obtained by the Credit Exposure Module (which ages positions and uses forward-looking market data) for the equivalent set of <analysisDate> and <horizon> tags. The only difference is that the Credit Exposure Module RiskServer computes a whole distribution of future values at the horizon, each based on a different set of simulated market data scenarios. For the <futureValue> statistic we only want the one set of future values that corresponds to the base scenario in which no market data is simulated (i.e. nothing moves except time). In a subsequent document we will describe a new statistic that allows reporting of all the scenarios themselves. The optional <valueTodaysFlows/> tag is a lot trickier. Implementation of this should be considered a bonus. We can implement <futureValue> without <valueTodaysFlows/> and add it in at a later date. The idea of this flag is to allow inclusion of positions and flows that expire on the future date. It is really only meaningful in the following context: Assume an <analysisDate> of 19 Aug 2002 and a horizon of 1D. For a bond paying semi-annual coupons with a maturity of 20 Aug 2015 we would expect a coupon payment tomorrow. Thus the PV of the bond as of 19 Aug 2002 would include that expected cashflow. But if we move forward one day to the 20th we would find the PV of the bond drops by the value of the coupon since the coupon is being thrown out. This is the desired course of action for normal RiskServer operation (we always toss cashflows that occur as of today). But in this case if we are trying to measure the anticipated change in PV from the 19th to the 20th we would want to keep that cashflow. In this fashion the PV changes only due to movement in time and through the yield curve---not due to expired cashflows. The same concept applies to positions that would expire on the 20th. Their PV would be zero unless we include their value. The only reason this is important is for the computation of theta by which compare the <presentValue> on one day with the <futureValue> on the next day. If <futureValue> was 2 days or 1 month in the future then we would have missed a lot of interim cashflows anyway so saving those at the horizon is moot. As mentioned, inclusion of <valueTodaysFlows/> is probably very difficult. We can leave it for another day. To compute theta for hedge fund we will simply take note of which options are expiring and exclude them from the calculation.
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Bond Equivalents
Bond Equivalents Definitions
Summary This page describes a statistic called Bond Equivalents. The purpose of the statistic is to measure the interest rate sensitivity of one portfolio with respect to another. In practice, the second reference portfolio consists of only a single bond instrument, generally a two-year or ten-year note. However the second portfolio can be any combination of instruments.
Definitions
{P} {R} PVi xj Dij
- set of all positions in the main position group. - set of all positions in the reference position group. - Present Value of the ith cell (instrument, sector, etc.). - the jth risk factor entering into the pricing equation of an instrument. - the first derivative of the Present Value of the ith cell with respect to factor xj. = dPVi/dxj = [ PVi (xj + xj) PVi (xj xj) ] / (2*xj) for small values of xj - total interest rate sensitivity for the ith cell (note this is not the same as = Dij, where the sum is taken over all j interest rate factors.
Di Duration). D{R} NLC{R}
- total interest rate sensitivity for the reference portfolio. = Di{R} where i represents only the total cell of the reference portolio. - total Notional in Local Currency of the reference portfolio. Notional in Local Currency has been previously defined.
Statistics and Variations
BEi BENi
- Bond Equivalents of the ith cell. = Di / D{R} - Bond Equivalents Nominal of the ith cell. = Di / D{R} * NLC{R}
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Bond Equivalents part 1

Bond Equivalents map securities and portfolios to positions of equivalent sensitivity in a bond of the user's choice. This is a measure of sensitivity to a parallel shift in the interest rate curve, much like modified duration. An example follows. First, decide on a reference bond (or a portfolio of reference bonds). This is the benchmark bond against which all others will be measured. In the example below, we have created a 10year 4.875 USD Gov bond to use as reference. The bond has aged approximately 3 months giving it a duration of about 7.51. Now we assign this bond to its own portfolio. In our example below, we will measure the risk of a portfolio of three bonds as follows. Note that bond (a) in the portfolio is a duplicate of the reference bond. Bond (b) has the same coupon but is 20 years to maturity. Bond (c) is a US Treasury 10yr STRIP dated 2/15/2012. We have assigned a 1MM notional for each position.
Bond (a) (b) (c)
Maturity 2/15/2012 2/15/2022 2/15/2012
Coupon 4.875% 4.875% 0.00%
Face Value $1,000,000 $1,000,000 $1,000,000
We create a report and select the statistic "bond equivalent." We choose the portfolio with the reference bond(s) as the Position Group.
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Bond Equivalents part 2

The report output is below.
Note that in row (a) the duplicate of the reference bond has a bond equivalent of 1.00, as we might expect. Bond (b) is 1.5165 as sensitive as the reference bond. One would need to buy 1.5165 times as much of the reference bond to achieve the same sensitivity to parallel interest rate changes. Note that for confirmation of the results we have run a stress test, moving the USD Govt curve up 1 basis point. The stress test in then last column shows that the same face amount of bond (b) gives 1.5165 as much loss as (a), exactly as we predicted with Bond Equivalents. Editors Note: The +1bp simple stress test applied to the USD Govt curve can be equivalently defined by using the PVBP delta statistic using a +1 basis point change. The PVBP delta statistic is an efficient way of applying a simple parallel shift to all yield curves in RiskManager. Also note that (duration * present value) accurately confirms the P&L (change in market value) generated by the stress test which serves as an additional confirmation of the three bond statistics (PV, Bond Equivalents, and Stress Test).
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Duration
Duration Calculations in RiskManager
The duration of any fixed-income instrument is most generally defined as the ratio of its interest rate sensitivity to its current value. RiskManager measures interest rate sensitivities by parallel shifts of all the zero-rate vertices that comprise a particular yield curve, and current value is simply the Present Value of a position. This computation is known as Effective Duration and has the attractive property of being calculable for many instrument types, including those that do not have well-defined yield-to-maturities (as would be required for Macaulay Duration).
Definitions
{P} {B} PVi PV{P} PV{B} uPVi uPV{P} uPV{B} xj Dij
- set of all positions in the main position group. - set of all positions in the benchmark position group (if specified). - Present Value of the ith cell (instrument, sector, etc.). - total Present Value of all positions in the main position group {P}. - total Present Value of all positions in the benchmark position group {B}. - Underlying Present Value of the ith cell (to be described under separate cover). - total Underlying Present Value of all positions in the main position group {P}. - total Underlying Present Value of all positions in the benchmark position group {B}. - the jth risk factor entering into the pricing equation of an instrument. - the first derivative of the Present Value of the ith cell with respect to factor xj. = dPVi/dxj = [ PVi (xj + xj) PVi (xj xj) ] / (2*xj) for small values of xj
Statistics and Variations Duri Duration of the ith cell. Note this definition of duration is known as effective duration and it has the nice property that it can be viewed as the sum of all partial durations for the ith cell taken with respect to interest risk factor j.
= dPVi/dxj / |PVi|, where the sum is taken over all j interest rate factors.
CDuri
Contributional Duration of the ith cell. = dPVi/dxj / |PV{P}|, where the sum is taken over all j interest rate factors uDuri - Underlying Duration of the ith cell. = dPVi/dxj / |uPVi|, where the sum is taken over all j interest rate factors
uCDuri Underlying Contributional Duration of the ith cell. = dPVi/dxj / |uPV{P}|, where the sum is taken over all j interest rate factors
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Problems with Duration when Present Value is ill-defined

Unfortunately, duration calculations are not always well defined when there is no clear meaning of Present Value. For a simple bond, Present Value can always be computed as current mark-tomarket. But for a bond futures contract Present Value is strictly zero, and since duration is interest rate sensitivity divided by Present Value, the calculation yields duration numbers of infinity. Similarly, a bond option has a very small Present Value reflecting current premiums, which also leads to unrealistically high duration numbers. A further problem arises when comparing the duration of two bonds. While it is clear that the duration of each bond can be separately computed and contrasted, the relative duration of the two is ill-defined unless they both have the same Present Value. Again this is because duration is interest rate sensitivity divided by Present Value. But which Present Value should be used? That of the first bond or the second bond? Taking the difference of Present Values of two bonds does not help because that value can be very small or even zero. To help provide meaningful duration numbers in these cases RiskManager offers variations of Effective Duration in which the user has the option of redefining how Present Value is computed under these problematic circumstances.
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Introducing Underlying Present Value

In the Duration Report (shown below) are a series of calculations for two separate portfolios: one labeled Australian Bonds, and one labeled AUD Bond Index. The bonds in each portfolio are subdivided into different Terms. The first column indicates the Present Value of the Australian Bonds portfolio to be 2,375 MM compared to 30,633 MM for the AUD Bond Index. The total Present Value of each portfolio is of course the sum of the Present Values of its constituent bonds. Examining the Long-Term constituents for each portfolio reveals that an AUD Bond Futures contracts is part of the Australian Bonds group. The Present Value of this position is correctly indicated as zero. The total Present Value of Australian Bonds portfolio is therefore indicative of its true mark-to-market. Though correct in terms of total mark-to-market computations, showing a zero for the Present Value of the AUD Bond Futures contract does not shed any light on the size of the position itself. To alleviate this shortcoming, RiskManager can compute a variation of the Present Value statistic called Underlying Present Value. For cash bonds these two values are identical, but for futures and options Underlying Present Value refers the full Present Value of the bond that underlies the contract itself. As shown in the second column, the Underlying Present Value for every cash bond is the same as its Present Value. Since the AUD Bond Index portfolio has only cash bonds its total Underlying Present Value is also identical to its total Present Value. But for the AUD Bond Futures contract the Underlying Present Value is computed to be 154 MM (rather than zero), comparable to the size of other positions in the portfolio. The total Underlying Present Value of the entire Australian Bonds portfolio is likewise raised by 154 MM to 2,530 MM. Note that neither column 1 nor column 2 is more correct than the other. Column 1 should be used for mark-to-market purposes in order to properly account for the inherent leverage associated with futures positions (they contain risk but no value). Column 2 should be used for economic purposes in order to measure the size of the portfolio.
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Using Underlying Present Value to compute Underlying Duration

These differences become more important in the duration column and the underlying duration column which present two variations of duration. The duration column shows the usual Duration of each position and portfolio which is computed by dividing interest rate sensitivities by Present Values. The next column is shows the Underlying Duration of each position and portfolio, computed by dividing those same interest rate sensitivities by Underlying Present Value. Since the Present Values and Underlying Present Values for each bond in the AUD Bond Index are identical, Duration and Underlying Duration are also identical. However the AUD Bond Futures contract shows very different results. The Duration of the futures contract is infinite (because it has zero Present Value) whereas the Underlying Duration is an acceptable 7.4 years. Which duration number is correct? This once again depends on the purpose of the calculation. In order to measure a duration number for a particular futures contract the Underlying Duration computation clearly makes more sense. But note that this also effects the duration of the entire Australian Bond portfolio, which shows a Duration of 3.55 years but an Underlying Duration of only 3.33 years. The duration column represents the true duration of the portfolio in terms of its mark-to-market value. Adding futures contracts directly increases the total duration of the portfolio because interest rate sensitivity is increased without any increase in portfolio value. This is expected because of the inherent leverage embedded in futures contracts. On the other hand, the underlying duration column represents a kind of economic duration in which futures and cash positions are treated in the same fashion, the leverage built into futures contracts being ignored. Both columns are therefore important risk management measures.
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Introducing Contributional Duration

As described so far, all calculations of duration have been performed by dividing the interest rate sensitivity of a particular position by its corresponding Present Value or Underlying Present Value. Though this is correct, it makes comparison of the duration of two positions, or two sets of positions, difficult because each may have a different Present Values. For example, within the AUD Bond Index the duration of Very Long Term bonds is shown to be 7.84 years, which is more than twice the duration of Mid Term bonds at 3.66 years. But the Present Value of Mid Term bonds is 9,676 MM, which is more than four times the 2,013 MM of Present Value for Very Long Term bonds. When combined with the other two groups, all these sensitivities ultimately yield a total Duration of 4.29 years for the AUD Bond Index itself. To allow a more direct comparison of durations for different groups each having different Present Values, RiskManager offers another variation of duration known as Contributional Duration. For this calculation interest rate sensitivities for each position, or group, are divided by the Present Value of the total portfolio rather than that of each individual position, or group. Because the divisor is the same for each position, the distinct contribution of interest rate sensitivity each position imparts to the total portfolio is readily determined. As shown in the Contributional Duration column of Very Long Term bonds is only 0.51, compared with 1.15 for Mid Term bonds. This factor of two is as expected since (a) the Present Value of Mid Term bonds is over four times that of Very Long Term bonds, and (b) the interest rate sensitivity of Mid Term bonds is about half that of Very Long Term bonds. One nice feature of Contributional Duration is that the components of the total always sum to the total itself (i.e. 4.3 = 0.38 + 1.15 + 2.22 + 0.51). And at the portfolio level Duration and Contributional Duration are of course identical (since the Present Value of that line is indeed the Present Value of the entire portfolio).
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Using Underlying Present Value to compute Underlying Contributional Duration

Lastly there is one final variation of duration that combines Underlying Present Value with Contributional Duration. As might be expected this is called Underlying Contributional Duration. The calculation is identical to that of Contributional Duration except that all interest rate sensitivities are divided by the Underlying Present Value of the entire portfolio rather than the Present Value. The results of this calculation are given in the underlying contributional duration column. For the AUD Bond Index there is no difference between Contributional Duration and Underlying Contributional Duration since the portfolio only contains cash bonds. But for the Australian Bonds portfolio the difference reflects whether or not to use the Present Value (zero) or the Underlying Present Value (154 MM) of the AUD Bond Futures contracts. Neither statistic is more correct than the other; it all depends on the purpose of the calculation.
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Contributional Duration is ideal for Measurements against a Benchmark

The real power of Contributional Duration comes to light when it is used to measure the duration of one portfolio against another. The Relative Duration Report (shown below) shows just such a calculation in which the duration of the Australian Bonds portfolio is measured relative to the AUD Bond Index. The top report section are the Present Values columns of the two portfolios relative to each other, as well as individually. Because the AUD Bond Index has been balanced to the Australian Bond portfolio the total relative Present Value is zero, but the sub-rows indicate precisely where the Australian Bonds portfolio is overweighted (Short Term and Mid Term) and underweighted (Long Term and Very Long Term) with respect to the AUD Bond Index. The bottom report section show Contributional Durations for each portfolio, as well as the relative Contributional Duration of Australian Bonds against the AUD Bond Index. At the total portfolio level Australian Bonds is shown to be short 0.73 years of duration with respect to the AUD Bond Index. This result is nothing more than the difference between the total duration of the Australian Bonds portfolio (3.55) and the AUD Bond Index (4.29). More to the point is that the report also indicates the relative duration for each sub-level. This could not have been computed by taking the differences of the Durations of each sub-level for the two portfolios because the Present Values at each sub-level differ (only at the top level do they match). However, the differences between Contributional Durations can be measured because each is computed based on the same Present Value (that of the total portfolio). The report readily indicates that for the 0.73 years short of total relative duration of Australian Bonds against the AUD Bond Index, 1.04 and 0.51 years are due to being net short in Long Term bonds and Very Long Term bonds, and 0.15 and 0.66 years are due to being net long in Short Term bonds and Mid Term bonds. To summarize: Both Duration and Contributional Duration for each portfolio and each sublevel can be measured separately. And at the top level they can be subtracted to compute a relative measure. But relative measures at each sub-level are meaningful only for the Contributional Duration statistic. Thus Contributional Duration provides a very powerful method of analyzing fixed income portfolios relative to a benchmark that Duration alone cannot capture. PV Total = Overweight / Underweight (in money terms)
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Relative Contributional Duration
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Delta Equivalents
Delta Equivalents
Delta Equivalent maps a portfolio to its underlying Risk Factors, and shows the equivalent amounts of each risk factor which have equivalent risk. For Equities, Commodities, and FX rates, the deltaequivalent based on % price changes for the simple underlying time series. Example: A very straightforward example is a stock showing a delta equivalent of $100,000. This means that if the S&P moves by 5%, then the value of your position would move by (5% * $100,000) = $5,000. It is literally the sensitivity of the value of your position with respect to % changes in the underlying time series. For Interest Rates the number at each point of an interest rate curve represents a delta-equivalent based on price change for the corresponding zero-coupon bond. Example: A $1,000,000 13-year 6% coupon bond shows a mapping to risk factors as follows:
The USD Govt 10-year risk factor has a value of $361,453. This means that if the value of the 10-year zero-coupon bond moves an absolute amount of 1%, then your 13-year bond's price would change by approximately (1% * $361,453) = $3,614. It is easy to convert the price-sensitivity of this risk factor to a yield-sensitivity. Since the risk factor refers to a 10-year zero coupon bond, just divide by the duration, 10. Thus, the bond would exhibit the same sensitivity when the yield of the 10-year zero-coupon bond moves an absolute amount of 0.1%. We can test this by running a simple stress test. Moving the 10-year point on the USD Govt curve 0.1% (in absolute terms) produces Stress Test PV Delta of $3,533
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Delta Equivalents
A delta equivalent is the derivative of the present value with respect to a given risk factor multiplied by the value of the risk factor. Delta equivalents are different from other statistics because they always refer to a specific risk factor or time series". For example, an equity option expiring in four months has three delta equivalents: one for the underlying equity time series (e.g.,IBM), and two for the yield curve time series (e.g., three month and six month points in the USD government curve).
In the example report below we examine some currency futures positions. Delta equivalents are shown for each risk factor. For example, the Sep 2001 EC futures (comprised of two short positions of one lot each) has exposure to: 1. 2. 3. EUR FX Spot EUR Govt curve 1M and 3M points (risk settings analysis date is Aug 15th 2001). The position is just over 1 month before expiration (expy Sep 17th 2001). USD Govt 3M point (the reporting currency is USD).
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Delta Equivalents Report Definition

The key to a delta equivalent report is to select two parameters (both circled in the layout manager below): 1. 2. Statistic - Delta Equivalents. Drill-down Dimension must include "risk factor".
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Generalized PVBP Statistic

Generalized PVBP
Updated Jan 29, 2003
Summary of Generalized PVBP released with RM3.6 This specification defines extensions to the current PVBP and PVBP Delta statistics that generalize the existing framework to all asset classes. In the present implementation users can specify a uniform parallel shock to interest rate curves only. The extensions discussed herein provide methods for shocking all other time series as well.
Analytics Extensions and Modifications
Precedence note: <volatilityShiftInBasisPoints> takes precedence over <volatilitySurfaceShiftInBasisPoints>. <volatilityShiftInBasisPoints> allows users to specifiy a uniform shift to all implied volatilities. For an option-based position, the implied volatility can be either specified by the user or calibrated by RiskServer if left blank. The units for this are in absolute basis points. For example, a specified shift of 150 would raise a given volatility from 22.25% to 23.75%. This field can be any real number, should be optional, and default to zero if left blank.
<volatilitySurfaceShiftInBasisPoints> allows users to specifiy a uniform parallel shift to all volatility curves. The units for this are in absolute basis points. For example, a specified shift of 150 would raise a given volatility from 22.25% to 23.75%. This field is consistent with the present tag <shiftInBasisPoints> that stresses interest rate curves. This field can be any real number, should be optional, and default to zero if left blank. <equityShiftInPercent> allows users to specifiy a uniform shift to all equity prices. The units for this are in relative percent. For example, a specified shift of -2.50 would drop a given equity price from 40 to 39. This field can be any real number, should be optional, and default to zero if left blank. allows users to specifiy a uniform shift to all fx rates relative to their base currency. The units for this are in relative percent. For example, a specified shift of 5.50 would increase a GPB/USD rate of 1.5 to 1.5825 (assuming a base currency of USD). This field can be any real number, should be optional, and default to zero if left blank. allows users to specifiy a uniform shift to all commodity curves. The units for this are in relative percent. For example, a specified shift of 25.0 would drop a 3-Month Gold price from 300 to 225. This field can be any real number, should be optional, and default to zero if left blank. this field already exists and allows users to specifiy a uniform parallel shift to all interest rate curves. This field should be made optional and default to zero if left blank.
<fxShiftInPercent>
<commodityShiftInPercent>
<shiftInBasisPoints>
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<spreadShiftInBasisPoints>
allows users to specifiy a uniform parallel shift to all non-risk-free interest rate curves. The definition of a risk-free curve is any curve that has been specified as the default for a currency. Thus non-risk-free curves are all the rest. Note this is only a best-effort determination of what is risk-free and what is considered a spread curve. Inflation-Indexed bonds fall into a grey area as do some other curves. This particular tag will eventually be superceeded by more precise CreditGrades analytics but is robust enough for general use. The user can always run a report on only those positions considered spread-based in order to better distinguish instruments. The units for this are in absolute basis points. For example, a specified shift of 270 would raise a non-risk-free interest rates of 5.80% to 8.5%. This field is consistent with the present tag <shiftInBasisPoints> that stresses all interest rate curves. This field can be any real number, should be optional, and default to zero if left blank.
Analytics Considerations 1. Users are permitted to specify values for <shiftInBasisPoints> and <spreadShiftInBasisPoints> simultaneously in which case the shifts are added together. For example, a <shiftInBasisPoints> of +200 and a <spreadShiftInBasisPoints> of 100 would result in all risk-free rates increasing by 200bp and all non-risk-free rates increasing by only 100bp (+200 100). 2. When values for <volatilityShiftInBasisPoints> and <volatilitySurfaceShiftInBasisPoints> are both specified, <volatilityShiftInBasisPoints> takes precedence, the <volatilitySurfaceShiftInBasisPoints> value will be ignored. 3. Negative interest rates and volatilities may result for some combinations of user values. RiskServer should set all negative values resulting from a particular instance of this statistic to zero to avoid analytics conflicts. 4. Users can set any combination of values for all six shift tags. If all values are left blank then the result will be the simple case of no movement for any curve, price, or rate---a useless by nevertheless valid case. 5. Shifting commodity curves is mathematically robust but not always economically meaningful. For physical commodities and equity indices the results are fine. But for eurodollar and bond futures the results are not as meaningful. No action required at present---just something to note. 6. The riskType drilldown dimension is applicable for the <dvbpDeltaPV> statistic. This dimension should separate delta-PV results based on the type of curve that was moved: <shiftInBasisPoints> and <spreadShiftInBasisPoints> are both mapped to Interest Rates; <volatilityShiftInBasisPoints> is mapped to Vega, <equityShiftInPercent> is mapped to Equity, <fxShiftInPercent> is mapped to FX, and <commodityShiftInPercent> is mapped to Commodity. The riskType drilldown is not applicable for the <dvbpPV> statistic (this is consistent with our other PV-based statistics). Interface Considerations The interface for the two statistics PVBP and PVBP Delta should be augmented to reflect the new tags outlined above. Labels and mouse-overs for the tags should be as follows: <shiftInBasisPoint> <spreadShiftInBasisPoint> <fxShiftInPercent> Interest Rates Shift (bp), This shifts all interest rate curves (riskfree and credit) by the number of basis points specified. Spread Rates Shift (bp), This shifts all credit (non-risk-free) curves by the number of basis points specified. FX Rates Shift (%), This shifts all FX rates relative to your base currency by the percentage specified.
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<commodityShiftInPercent> <equityShiftInPercent> <volatiltyShiftInBasisPoint>
Commodity Rates Shift (%), This shifts all commodity curves by the percentage specified. Equity Rates Shift (%), This shifts all equity prices by the percentage specified. Volatility Rates Shift (bp), This shifts all volatility curves by the number of basis points specified. Applicable only for option-based positions that have a defnied volatility curve.
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Generalized Greeks
Generalized Greeks
Summary This specification defines a framework for producing generalized Greek Sensitivities applicable for individual positions as well as complete portfolios. The framework builds upon the specifications for Generalized PVBP and Future Value. In deriving a framework for generalized Greek Sensitivities two problems quickly surface. The first problem is that traditional Greek measures such as delta and gamma do not translate well across multiple positions since they refer to absolute price changes per unit move of some other underlying price. This is solved by creating sensitivities based on (a) present value changes in a common base currency instead of price changes in each positions own local currency, and (b) a uniform set of relative underlying moves (such as basis points or percentages) instead of absolute moves such as dollars or yen. The second problem is that sensitivities for different classes of risk factors cannot be aggregated in any meaningful fashion (such as interest rates deltas with commodity deltas). Creating statistics that separate each asset class solves this problem. While the final framework is certainly not foolproof, it does provide a uniform way of producing aggregate Greek Sensitivities across all asset classes from within RiskServers current reporting structure. Some of the outstanding issues that arise from this framework suggest an update to some of our instrument models rather than to a new framework itself (e.g. bond futures, when treated as a commodity in order to get more accurate basis risk, show no interest rate sensitivity. Rather than kludge together an answer we should consider an improved bond futures model).
RML Extensions and RiskServer Analytics A new statistic will be added to RiskServer called <greekSensitivity>. The display name for this statistic is simply Greek Sensitivities. The statistic will support all the usual tags that allow for drilldows, percent-PV, etc. In addition there will be one other required tag called <sensitivityType> whose single required argument defines the particular type of sensitivity that should be computed for this instance of the statistic. The table below lists all valid arguments for <sensitivityType> along with the computation to be performed. Note that most calculations are based on functionality outlined in specs 1012 and 1014. Also note the separation of some constants for clarity (in the actual code these constants should of course be pre-multiplied).
Sensitivity Type
Computational Procedure Compute P2 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.1. Compute P1 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.1. Set <greekSensitivity> = (P2 P1) / (2 * 0.1).
Resulting units are in base currency per %.
<equityDelta/>
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<equityGamma/>
Compute P2 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.2. Compute P1 = <dvbpDeltaPV> for <equityShiftInPercent>= 0.2. Set <greekSensitivity> = (P2 + P1) / (0.2)2. Resulting units are in base currency per % squared. Compute P2 = <dvbpDeltaPV> for <shiftInBasisPoints>= 1. Compute P1 = <dvbpDeltaPV> for <shiftInBasisPoints>= 1. Set <greekSensitivity> = (P2 P1) / 2. Resulting units are in base currency per bp. Compute P2 = <dvbpDeltaPV> for <shiftInBasisPoints>= 2. Compute P1 = <dvbpDeltaPV> for <shiftInBasisPoints>= 2. Set <greekSensitivity> = (P2 + P1) / (2)2. Resulting units are in base currency per bp squared. Compute P2 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.1. Compute P1 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.1. Set <greekSensitivity> = (P2 P1) / (2 * 0.1). Resulting units are in base currency per %. Compute P2 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.2. Compute P1 = <dvbpDeltaPV> for <commodityShiftInPercent>= 0.2. Set <greekSensitivity> = (P2 + P1) / (0.2)2. Resulting units are in base currency per % squared. Compute P2 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 1. Compute P1 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 1. Set <greekSensitivity> = (P2 P1) / 2. Resulting units are in base currency per bp. Compute P2 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 2. Compute P1 = <dvbpDeltaPV> for <spreadShiftInBasisPoints>= 2. Set <greekSensitivity> = (P2 + P1) / (2)2. Resulting units are in base currency per bp squared. Compute P2 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.1. Compute P1 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.1. Set <greekSensitivity> = (P2 P1) / (2 * 0.1). Resulting units are in base currency per %. Compute P2 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.2. Compute P1 = <dvbpDeltaPV> for <fxShiftInPercent>= 0.2. Set <greekSensitivity> = (P2 + P1) / (0.2)2. Resulting units are in base currency per % squared. Compute P2 = <dvbpDeltaPV> for <volatilityShiftInBasisPoints>= 1. Compute P1 = <dvbpDeltaPV> for <volatilityShiftInBasisPoints>= 1. Set <greekSensitivity> = (P2 P1) / 2. Resulting units are in base currency per basis point. Compute P2 = <futureValue> for <horizon>=1D and <valueTodaysFlows/> Compute P1 = <presentValue> Set <greekSensitivity> = P2 P1.
Resulting units are in base currency per calendar day.
<interestDelta/>
<interestGamma/>
<commodityDelta/>
<commodityGamma/ >
<spreadDelta/>
<spreadGamma/>
<currencyDelta/>
<currencyGamma/>
<vega/>
<theta/>
When all sensitivities are defined as above, price changes, PV, can be approximated at any level of aggregation by:
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PV
= + + +
+ +
equityDelta * (proposed %change in equities) * equityGamma * (proposed %change in equities)2 commodityDelta * (proposed %change in commodities) * commodityGamma * (proposed %change in commodities)2
currencyDelta * proposed %change in currencies * currencyGamma * (proposed %change in currencies)2
+ + + + + +
interestDelta * proposed bp change in interest rates * interestGamma * (proposed bp change in interest rates)2 spreadDelta * proposed bp change in spreads * spreadGamma * (proposed bp change in spreads)2 vega * (proposed bp change in volatilities) theta * (proposed days to age)
This approximation is not used at all by RiskServer but rather shows clients how to interpret the sensitivities themselves.
Questions and Answers
Question: Why not compute all the sensitivities at once within a single instance of the new statistic? Is it really necessary to create a multi-statistic report where each column is a different sensitivity type? Answer: Yes. We cannot create all the sensitivities at once in the same column because (a) We would be mixing deltas, gammas, vegas, and thetas; (b) Not all drilldown dimensions are appropriate for all types (e.g. theta by risk type); (c) There is no concept of total sensitivity even within the same class. That is, you cannot add equity deltas and interest rate deltas together in a meaningful way. Creating a separate column for each guarantees that even if you choose to drilldown by risk type (which is fine) then only one dimension will be populated per column, and (d) Nomenclature is instrument-dependent---interest rate delta is fine for bond options but its called rho when it applies to equity options. Different columns allow for different display names depending on the nature of the positions being analyzed. Question: The above procedure are basically numerical derivatives. Why not use standard derivative procedures? Answer: By using well-defined tweak moves, clients can reproduce the exact number by manually creating stress tests and DVBP reports. Question: Arent the deltas above the same as those in our delta equivalents report? Answer: The are similar, but not the same. On the analytics side we have three main differences:
Delta-equivalents are pre-multiplied by price (dP/dX * X) whereas deltas are just straight sensitivities (dP/dX) Delta-equivalents for interest rates refer to each individual nodes whereas deltas are based on parallel shifts of the yield curve itself. Delta-equivalents for interest rates are scaled to bond-prices. Deltas are based on zero-rates.
On the structural side we have the fact that the deltas described above are in a more general framework that allows for all the usual aggregations and drilldown dimensions. In contrast, the
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delta-equivalents statistic is tied to the risk-factor dimension, which itself does not work well with the other statistics. In the new framework deltas will fit alongside of gamma, theta, vega, Duration, VaR, etc. as just another statistic. In a later specification we will define a more general use of the risk-factor dimension to allow it to function with other statistics as well.
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Addendum to Generalized Greeks
<theta/>
Compute P2 = <futureValue> for <horizon>=1D and <valueTodaysFlows/> Compute P1 = <presentValue> Set <greekSensitivity> = P2 P1.
Resulting units are in base currency per calendar day.
Theta is described as above in the original specification. There are several caveats in this description. In the description below, today is the original analysis date, and tomorrow is the day after the original analysis date. Future value: The future value described here is not the future value statistic provided by RiskServer. Rather, it is the value of the position given a valuation spec (or risk settings) with analysis date set to tomorrow, but nothing else changed. In particular, the pricing date must be unchanged. If a position has any calibrated fields, those fields must be entered by the user, not left blank or calculated, or the future value will be wrong because the fields will be recalibrated for tomorrow. Of course, the user can do an analysis to get the present value and get position diagnostics at the same time, then edit the position to include the correct values for the calibrated fields, before getting the future value. There are some other fields (e.g., volatility for collars) which are not calibrated, but which are computed from historical data if not entered by the user. These fields must also be entered, not left blank, or the future value will be wrong. Positions that expire tomorrow: Positions that expire tomorrow have 0 theta. Always. Flows that expire tomorrow: Some instruments have flows that expire tomorrow, even though the position itself does not. Examples are bonds or FRNs with coupons that will be paid tomorrow, instruments with settlement dates tomorrow, caps with caplets that expire tomorrow. Such a flow will be converted to its value as of tomorrow and theta for the position will include the difference between tomorrows value and todays value for that flow.
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Reports
Selecting Reports from the Home Page
Mouse over "Reports" will describe the function. Clicking "Reports" will take you to the Reports section of the application.
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Customizable Table Report

Customizable Table Report
Select "Customizable Table Report" when creating a report.
Fill in the Customizable table report form in the Layout Manager. There are many related topics:
General - report setup Position Definition - Benchmark Pair Definition Risk Settings - Working with risk settings Horizon Groups - Working with horizons Statistics 1. VaR 2. Marginal VaR 3. Incremental VaR 4. Statistic as Percent Display (percent VaR example) 5. Relative Statistics (relative var to a benchmark or index) 6. Delta Equivalents 7. Expected Shortfall 8. Duration - effective duration by shifting non-parallel spot curves. 9. PVBP Statistics- price value of a (number of) basis point(s) move - parallel shift. PVBP - display the PV resulting from a parallel shift in bps. PVBP Delta - display the change in market value due to a specified parallel shift in bps. Stress Test Statistics 1. Stress PV 2. Stress PV Delta
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Bond Portfolio Summary

Customizable Table report for Bond Portfolios PV, Duration, PVBP01, and Stress Scenario on one page Drill-downs dimensions of 1. Currency (included with RiskMetrics) 2. Custom nested tag- Maturity\1-3 and Maturity\7-10. For more information on tags and custom dimensions, see "What is a Tag Dimension". 3. Maturities dimension using horizon buckets (medium- included with RiskMetrics). For more information on horizons see "Working with Horizons". 4. Position (included with RiskMetrics). The report definition is
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Report Viewer shows expandable aggregation levels
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Custom Table Annotated Report

Download the annotated (Excel version) report now! Click the "notes" marked in various cells as noted by the red corners. In the downloaded spreadsheet, mouse over the marked cells (with a red corner) for information.
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Risk Attribution in Practice
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Objectives of Risk Attribution

Objectives of Risk Attribution Risk Attribution segments the relative risk of a portfolio into components that correspond to active investment decisions. Use as a diagnostic tool to measure the forward looking risk of each decision. Estimates the forward looking risk tracking error. Assist in portfolio construction and rebalancing. Companion to performance attribution to measure risks taken to generate excess returns. Communication tool to enable investors to review risks of decisions.
Editor's Note: In the Risk Attribution Section, we examine an example of a simple portfolio and benchmark containing four stocks. In the portfolio, bets are taken at the security level and at the sector level. We examine all the risk attribution calculations in a companion spreadsheet (right click this link and save as...) and discuss the Risk Attribution report output straight from RiskManager. The example also follows the white paper on Risk Attribution by Jorge Mina (2002). Objectives of Risk Attribution Risk Attribution Complements Performance Attribution Risk Attribution Decision Process Relative VaR and Risk Attribution Foundations Relative Value-at-Risk Objectives Performance Evaluation Triangle Applying the Evaluation Triangle to Portfolio Managers VaR Calculations start with Risk Factor Returns Forecast Future Price Changes and Volatility Decay Factor Controls the Weighting Scheme Decay Factors and Half Life Trading Days to Reach Time-Weighted Decay Level Applying a Decay Factor to Returns and Estimating Volatility: AT&T Common Aggregate Securities & Sectors Correlation of returns Compute the potential loss over the next horizon period Measure Losses Relative to a Benchmark Risk of Under-Performing the Benchmark A Word on Mechanics: Performance and Risk Attribution must share Dimensions Risk Attribution Reports Risk Attribution Reports and Examples Tracking Error Definitions Fully Worked Example: Simple Equity Portfolio Sector and Security Investments Four Equity Incremental Tracking Error Volatilities, Correlations, and Covariance Bets, Gradients and Relative Incremental VaR Total Tracking Error and Relative IVaR Equivalence Sector Allocation for Systems Hardware Sector Allocation Contribution for Systems Hardware Security Selection Contribution for Systems Hardware Security Selection Contribution for Dell and Sector Level
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Security Selection risk at the Sector Level Constant Portfolio BackTesting TE Historical Backtesting TE
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Risk Attribution Complements Performance Attribution
RiskManager handles the whole risk attribution process. Both performance and risk attribution tie back to the investment process. Many asset managers divide the investment process into a security selection, sector allocation, and country allocation for global investments shown on the left of figure 1. At the bottom of the process, security analysts pick stocks or bonds. They over-weight or underweight securities vis--vis the benchmark. They may also to choose to invest out of benchmark or even choose to have no investment at all of a benchmark security. Non-investments are effectively shorts against the benchmark. The risks of securities not invested in must be measured along side benchmark securities. Out of benchmark securities must be measured as well. At the security level in RiskManager, it is best to create a Security dimension and each stock or bond has the name of the security as the value for that dimension. The benchmark and the managed accounts share these security names so they can be aggregated. At the sector allocation level, many asset managers have sector analysts. These analysts must be assessed for the risks they have taken as compared to the benchmark. RiskManager may accept any dimension name or value. Clients may wish to repeat well-known sector names or use their own proprietary names. It is completely up to the user what these names contain. The objective is to match the performance attribution levels and names. Fixed Income accounts may use sectors of the market according to credit quality or sectors of the yield curve (or both). At the highest level, the country allocation level for global accounts, there may be a third group of analysts or allocation managers that determine the over-under weight on a country basis. The naming convention, again, is purely up to the user. The objective is to match the performance attribution process. The performance attribution process is handled externally (pictured in yellow in figure 1). Many RiskMetrics clients have this process in place already. The risk attribution process complements the reporting process of performance attribution. Each of the RiskManagerrisk reports can be structured to match the dimensions measured in the performance process. The risk attribution reports are a companion set of reports of the performance process. The glue that binds the investment process and the attribution process are the accounts and benchmarks themselves.
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Figure 1
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Risk Attribution Decision Process
The entire risk attribution decision process revolves around the portfolio manager and his clients (shown in figure 2). Objectives are set as to the investments to be made, what benchmarks are track, and now, what risk limits are to be adhered to. Market price action and economic conditions fuel this objective setting process and subsequent reviews (performance and risk). Market data time series are stored in a database and feed to the RiskManagerapplication through DataMetrics which publishes daily price data to the application. The portfolio manager takes the objectives and market information to construct or rebalance the clients accounts. In the past, only performance attribution contributed information to this process. Now, risk attribution enters the picture. Performance is just a part of the whole picture. Results from the portfolio construction process or rebalance are rendered as the account holdings. These portfolios are stored along with their corresponding benchmarks in a database. RiskManager takes the historical price data along with the portfolio and benchmark and measures an accurate picture of the risks being taken. Reports decompose the risks into the security, sector, and country dimensions.
Figure 2
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Relative VaR and Risk Attribution Foundations

Relative Value-at-Risk Objectives
Estimate by how much the current portfolio will under-perform the benchmark. At a given level of confidence (1 standard deviation, 95%, 99%). Over the next horizon period (year). Decompose this number into Country, Sector, and Security levels.
Key advantages of the value-at-risk approach Measures equally well across all asset classes. The value-at-risk methodology is not segmented into asset classes. Unlike risk modeling of the past, equities, fixed income, commodities trading and FX market positions can be combined into the same reporting framework. Uses daily returns for highest accuracy. We have more powerful computers now so well make good use of them. The modeling techniques of twenty years ago constrained us to daily or weekly data. VaR draws upon daily data. Measures equally well for International, Small Cap, Mid-Cap, and Large Cap stocks. The sectors of an individual market dont matter. VaR techniques can combine all markets and rank the risk of every position on an equal basis. Method stays close to the original price data. Draws upon 500,000+ time series. RiskManager draws from a price database of individual equities, FX spot rates, commodity prices, volatility surfaces. Analysis can be done real-time. Assumptions can be revised at any time. With the data always available, any assumption underlying the risk reporting can be altered. The RiskManagerVaR system recalculates numbers from original price data, not an intermediate dataset.
VaR Ingredients Daily price returns of each fundamental risk factor (time series). Risk Factors: The market data, individual equities, FX rates, key fixed income spot rates, futures, and commodities. Apply a decay factor to returns. Give more recent returns more emphasis than old returns. Volatility the standard deviation of market data returns. The calculated value is daily price volatility. Correlations between risk factors. Aggregate distributions to sector and country levels. Equity sectors will follow benchmark standards or may be proprietary sectors. Fixed Income sectors may follow credit ratings or maturity sections of the yield curve.
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Performance Evaluation Triangle
These ideas can be applied to portfolio manager investments compared to benchmarks. Here the position taking talent is security selection, sector allocation, and country allocation for global portfolios. To quote the 1996 RiskMetricsTechnical Document Fourth Edition: To date, trading and position taking talent have been rewarded to a significant extent on the basisof total returns. Given the high rewards bestowed on outstanding trading talent this may bias thetrading professionals towards taking excessive risks. It is often referred to as giving traders a freeoption on the capital of your firm. The interest of the firm or capital provider may be getting out ofline with the interest of the risk taking individual unless the risks are properly measured andreturns are adjusted for the amount of risk effectively taken. To do this correctly one needs a standard measure of risks. Ideally risk taking should be evaluated on the basis of three interlinked measures: revenues, volatility of revenues, and risks. Including estimated (ex ante) and realized (ex post) volatility of profits adds an extra dimension to performance evaluation. The ratio of P&L over risk (risk ratio) and of P&L over volatility (Sharpe ratio) can be combined into what we define as a traders efficiency ratio (estimated risk/realized volatility) that measures an individuals capacity to translate estimated risk into low realized volatility of revenues.
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Applying the Evaluation Triangle to Portfolio Managers
If you were to compare the performance of two portfolio managers without a risk system, you can only examine the history of their respective returns compared to the benchmarks. This process accurately measures their performance and volatility of excess returns, but says nothing about the risks each portfolio manager took to obtain their results. With risk information you can compare the portfolio manager more effectively. The next chart shows the risk ratio, Sharpe ratio, and efficiency ratio for the two portfolio managers over time.
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VaR Calculations start with Risk Factor Returns
We start with an example of AT&T Common Stock. We instruct RiskManagerto locate this time series in its price database. We setup an assumption list, the risksettings, that instruct the application to pull the price series from the most recent date back a certain period of time. We call this the look-back period. This period of time is listed as the time-series dates. For our example, this period is two years. If we examine the returns of our investment over the two year period, we could plot out the distribution of gains and losses. The RiskManagerreport, the portfolio simulated returns report, does exactly this. We can show, in graphical form, the return distribution for our AT&T investment. The graphics module allows us to superimpose the normal distribution on top of the empirical histogram of returns. In addition, we can show the actual mathematical historical distribution of the empirical distribution. The red line is the normal distribution. The blue line is the mathematical density function of the empirical distribution (shown by the green bars).
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Forecast Future Price Changes and Volatility The next step in the value-at-risk calculation is to forecast price changes:
1. We forecast each of a portfolios underlying instruments future price changes using only past changes to construct these forecasts. 2. Use a random walk model that describes the evolution of price returns. 3. Variance is modeled as a function of past variances as shown below: Pt = + Pt-1 + tt where t = N(0,1) & =0
Forecasting Volatility RiskMetrics uses the exponentially weighted moving average model (EWMA). The latest observations carry the highest weight in the volatility estimate. Following a shock (a large return), the volatility declines exponentially as the weight of the shock observation falls. In contrast, the use of a simple moving average (SMA) leads to relatively abrupt changes in the standard deviation once the shock falls out of the measurement sample. The graph below shows this effect upon returns.
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Decay Factor Controls the Weighting Scheme
The exponentially weighted moving average model depends on the parameter (0<<1) which is often referred to as the decay factor. This parameter determines the relative weights that are applied to past observations (returns) and the effective amount of data used in estimating volatility. What is the appropriate decay factor ?
To answer this question we must explore the impact of various decay factors on the lookback period. In the graph below, the decay factor found to work best for 1-day risk horizons is 0.94. The best decay factor for monthly horizons is 0.97. These empirical values follow research and methods explained in the RiskMetrics Technical Document (1996), Appendix C, pp 243-246. Note that the weight of the daily returns approaches zero in about 80 days for the 0.94 decay and about 130 days for the 0.97 decay factor. We conclude that a longer risk horizon requires a wider look-back period. We need more historical data.
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Decay Factors and Half Life The half-life is defined as the time taken to reach 50% weighting of returns. As the decay factor approaches equal weighting, or 1.0, the half-life becomes longer and longer. This is shown in the graph on the left where the decay factor is the horizontal and the numbers of trading days to reach 50% weighting are the vertical. The table on the right quantifies the half life in trading days and years for various decay factors. The closer the decay factor approaches 1.0, the higher the half-life and the longer the look-back period for returns is required.
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Trading Days to Reach Time-Weighted Decay Level
Another way of looking at decay factors and look-back periods is to examine the number of trading days to reach a certain level of weighting. The use of a 0.99 decay factor for a one-year risk horizon requires that we use more than one year of returns for our look-back period. Even at the 10% weighting level, we require 229 trading days. We suggest a two year look back period for decay factors of 0.99.
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Applying a Decay Factor to Returns and Estimating Volatility: AT&T Common
Once we can visualize what the decay factor is doing, the next step is to follow a full example on how RiskManagerestimates volatility. The following table is a spreadsheet that records the daily closing prices (column 2) of AT&T Common Stock from Nov 22, 2001 to Nov 22, 2002. The third column is the return being the natural log of prices today over yesterday. If we then apply a 0.94 decay factor to the returns, we see that the oldest returns (above the red line) are extremely small. Returns below the red line are recent and show a much higher weighting. The calculation is explained on pages 14-15 of the Return to RiskMetrics: Evolution of a Standard. The volatility is calculated as: SQRT(sum of rows*(1-decay factor)/(1-POWER(decay factor, M +1))) Download spreadsheet Computation of Daily Returns over Look Back Period Application of the Decay Factor to Weight Recent Data Calculation of Volatility of Weighted Daily Returns Prices P[t] Date 11/22/2001 11/23/2001 11/26/2001 11/20/2002 11/21/2002 11/22/2002 AT&T 34.7065 34.932 35.0755 27.66 28 27.97 LN(P[t]/P[t-1]) Return Log of Returns Number 0.648% 0.410% 1.677% 1.222% -0.107% 1 2 259 260 261 Index [i] 260 259 2 1 0 sum of rows decay^i*r(t-i)^2 4.32413E-12 1.84327E-12 0.000248508 0.000140304 1.14919E-06 1.030% decay factor M t = m+1 0.94 260 261
Source: Return to RiskMetrics (2001) pp 14-15
standard deviation 2.4860% volatility annualized v * sqrt(t) 40.163%
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Aggregate Securities & Sectors
RiskManager calculates the returns for every risk factor in the portfolio and benchmark. For equity portfolios, the individual stocks are analyzed. For fixed income, key spot rates contribute to each cash flow. RiskManager calculates the returns for each key spot rate. For international positions, FX rate returns are also calculated. The next task is to aggregate all the securities into sectors and portfolios. A portfolio return, rp, is a weighted average of continuously compounded returns.
rpt = wirit
i=1
Where w are the weights, r are the log returns across N assets. Aggregation may be done at any level (country, sector, etc.). To illustrate this visually, we aggregate two stocks (LEH and JPM) of 50% weighting into a sector (Capital Markets). The graphics were produced by the RiskManager report Simulated Portfolio Returns histogram. The 50-50 weighting blend was created using the index builder. Normally, the weights are set by investment decisions or by the index weights.
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Correlation of returns
Next, the correlations between position returns are calculated. The positions themselves are weighted combinations of the underlying stock risk factors. Here, we run a RiskManagerreport Portfolio Correlations and Volatilities to compute the correlations between the two stock positions.
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Compute the potential loss over the next horizon period
RiskManager pulls all the information we have already reviewed into a VaRcalculation. The report shows a potential loss of $3,724 for a joint 50% position of $5000 invested in both stocks. The report also shows we are exposed to $2,390 to JPM alone. The level of loss is shown at a given confidence level. Here, we show the loss at a one standard deviation of confidence (or 84.13%). This means that we have a 15.8% chance we could lose at least $3,724 in the next horizon period.
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Measure Losses Relative to a Benchmark Asset managers must measure the level of potential loss relative to a benchmark portfolio. To do this, we must take the benchmark holdings and negate them. If your investments equaled your benchmark, there would be no tracking error. All positions would cancel. In the chart below, we illustrate the original two security portfolio compared against the Capital Markets sector of the S&P 500 index. If we suppose this sector serves as our benchmark, we note the joint distributions of returns: the long positions of our two stock holdings and the short positions from all stocks in the Capital Markets sector. The benchmark is scaled to match the market value of the portfolio.
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Risk of Under-Performing the Benchmark
For Risk Tracking Error, we are interested in the loss tail of the joint distribution of the portfolio and benchmark. Definitions: Relative VaR: The percentile of excess returns at a certain confidence level. Risk Tracking Error: Special case of relative VaRunder normality assumptions when the confidence level is one standard deviation (84.13%).
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A Word on Mechanics: Performance and Risk Attribution must share Dimensions
Measurement dimensions used in Performance Attribution should be used in Risk Attribution. This is a fundamental requirement for any attribution program. The risk side of the equation must be measured along the same lines as performance. In RiskManager, we call these attributes dimensions. Examples of dimensions we have seen used in risk attribution are: Country Sector Industry Group Asset Class Region Security
Portfolio and Benchmark must share dimensions RiskMetrics uses tags to allow users describe these dimensions. Tags are just text labels of any dimension or category you wish to use and are attached to each investment holding. Each benchmark holding must share the same dimensions of the investment portfolio. In RiskManagersposition import format, RM3D, the tag dimensions would appear as shown below. Here we have an attribution name, a delimiter, and the attribution value.
Portfolio| SP500 |Security|MICROSOFTCORP|Country|US|Sector|Software & Services
Extending this concept to all holdings 1. 2. Lists of portfolio and benchmark holds are formatted in either XML or text. Text is TAB or COMMA delimited in RM3D format.
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Risk Attribution Report and Examples
Tracking Error Definitions

Tracking Error Standard deviation of daily excess returns over a one year time horizon Indicates level of risk in each position Always positive Not additive due to diversification Incremental Tracking Error: Change in risk due to a small change in position size Indicates level of sensitivity of risk to changes in holdings Additive May be negative
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Risk Attribution Reports
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Fully Worked Example: Simple Equity Portfolio
In this example we take a simple portfolio and benchmark containing the same four stocks. In the portfolio, bets are taken at the security level and at the sector level. We examine all the risk attribution calculations in a companion spreadsheet and discuss the Risk Attribution report output straight from RiskManager.
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Sector and Security Investments
The left side of the Risk Attribution report shows the weights of the portfolio and benchmark at both the Sector level and Security level. In addition, the bets taken at all levels are shown. The bet is the simple subtraction of Portfolio Benchmark weights. In the simple equity example of four stocks, we have no bet in General Motors, hence a zero weight. In the same sector of Consumer Cyclical, we have a 5% positive bet in Ford. This set the sector bet to 5% overweight as well. In the systems hardware sector, we are overweight Dell Computer by 10% and underweight IBM by 15%. The net bet for Systems Hardware is -5%.
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Four Equity Incremental Tracking Error
In this section we examine the incremental tracking error and its decomposition. The report follows a bottom-up approach favored by many asset managers. We will walk through the report in a bottom up fashion. This review follows the RiskMetrics Group Working Paper, Risk Attribution, by Jorge Mina (2002). The discussion also follows a spreadsheet replication of the calculations. Download Risk Attribution Spreadsheet Bottom-Up: The Security Selection Level If we examine our investment in Dell Computer where we had a positive 10% bet over the benchmark, we see the following numbers in the Risk Attribution report: Here we have Dell contributing 239 basis points of Security Selection Tracking Error risk. How are these numbers calculated?
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Volatilities, Correlations, and Covariance
We start with return volatilities and correlations of the individual stocks. In this example, we use a Risksetting with a two year look-back period and a 0.99 decay factor along with a 252 trading day analysis horizon. The date rate is August 30, 2000 to August 30, 2002. Running the RiskManager report Market Data Volatilities and Correlations, we obtain the following matrix: Correlation Matrix GM Dell 0.657546907 0.384795582 1 0.489804751 0.489804751 1 0.454240831 0.616614103 Volatility 252d IBM 0.354449447 0.454240831 0.616614103 1 40.80802775% 37.71998490% 50.58543551% 38.33783913%
Ford Ford GM Dell IBM 1 0.657546907 0.384795582 0.354449447
We can transform this information back into the covariance matrix by computing: Correlation of stock A with Stock B * Volatility of Stock A * Volatility of Stock B to obtain the covariance matrix:
Ford Ford GM Dell IBM 0.166529513 0.101214761 0.079433039 0.055453318
GM
Covariance Matrix Dell 0.101214761 0.079433039 0.142279726 0.093458756 0.093458756 0.255888629 0.06568789 0.119582211
IBM 0.055453318 0.06568789 0.119582211 0.146978991
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Bets, Gradients and Relative Incremental VaR
If we recall our equity bets, we computed our bet in Dell by subtracting the benchmark weight from the portfolio weight, arriving at the 10% bet. Benchmark Weights Consumer Cyclical Ford Motor General Motors Systems Hardware Dell Computer IBM 19.5596% 8.6619% 10.8977% 80.4404% 28.0522% 52.3882% Portfolio Weights 24.5596% 13.6619% 10.8977% 75.4404% 38.0522% 37.3882% Bets = W vector 5.00% 5.00% 0.00% -5.00% 10.00% -15.00%
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Total Tracking Error and Relative IVaR Equivalence
The sum of the relative IVaRs is equal to the total relative VaR (tracking error) of the portfolio. We can check this in the spreadsheet. Cell G10 is the right hand side of the equivalency equation 34 in the Risk Attribution paper, namely:
wTw
The sum of the relative IVaRs (H9 in the spreadsheet) matches the Total Tracking error of 515bps.
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Sector Allocation Contribution for Systems Hardware
Completing equation 38 in the spreadsheet by combining the Gradient and the Systems Hardware vector as a proportion of the total TE,
and in the RiskManagerreport, the 12bps of Systems Hardware sector allocation risk is shown below. Also shown is the total amount of security selection risk within systems hardware. The next pages show how this is calculated with our example spreadsheet.
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Sector Allocation for Systems Hardware
The sector allocation contribution for Systems Hardware (A) can be calculated as:
AT
(equation 38)
where, for stock s,
A (s) = (PA BA) (BS/BA BS) if S is a member of sector A

and (PA BA)BS if S is out of sector
The portfolio positions for sector A minus the benchmark positions for sector A times the ratio of Benchmark position for stock S to the Benchmark positions for sector A minus the benchmark positions for stock S. Is shown in the spreadsheet, for Dell Computer in Systems Hardware, the sector allocation vector element for Dell,
Systems Hardware (Dell):
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Security Selection Contribution for Systems Hardware
The security selection contribution for Systems Hardware (A) can be calculated as:
AT
(equation 39)
where, for the sector level security selection:
A(s) = (PS BS * PA/BA) if S is a member of Sector A

and 0 if S is out of sector.
for the bottom-up security selection method for stock s (equation 20),
S (i) = (PS BS) * (1 PS/BA) if S is a member of sector A

and 0
vector element for Dell, Dell :
if S is out of sector
Is shown in the spreadsheet, for Dell Computer in Systems Hardware, the security selection
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Security Selection Contribution for Dell and Sector Level
Completing equation 39 in the spreadsheet by combining the Gradient and the Dell security vector as a proportion of the total TE,
and in the RiskManager report, we see the 239bps of security selection risk for Dell.
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Security Selection risk at the Sector Level
At the Systems Hardware sector level, the Security Selection (SS) risk contribution is sum of the SS of the individual stocks (Dell and IBM):
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Constant Portfolio BackTesting TE
There are two types of backtesting: a) constant portfolio and b) historical. In constant portfolio backtesting, we test todays portfolio against many blocks of returns. In RiskManager, we can do this by shifting the window of returns one-month at a time to calculate TE. If we were to use daily or weekly shifts, we could show even more detail. Each block of returns contains varying volatilities and correlations. Here, each block of returns is two years of daily observations.
If we calculate the todays portfolio TE over these multiple blocks of returns and plot the values over time, where each TE is synchronized with the last date in each return block, we show the constant portfolio backtesting of the portfolio.
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Historical Backtesting TE
To perform historical backtesting, users of RiskManager must store account tracking error values on a daily basis. The changes in the portfolio and benchmark will be reflected in the TE numbers. Next, plot the values over time for each account portfolio and compare the TE drift against a risk target. Daily storage of TE values can be accomplished through a batch facility called RMX Server. RMX is orchestrates the process of: a) b) c) d) e) f) Managing multiple accounts and benchmarks. Directing the translation from tab-delimited to RML conversion (Data Translator). Dividing the blocks of accounts into individual calculations (Divider). Managing the calculation process (RiskServer Director) Managing the Risk Attribution report generation (Risk Reports) Storing parsed elements of the calculations in a results database.
It is the results database we can draw upon to plot historical tracking error.
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Multiple RiskSetting Report

Multi-RiskSetting Report
Single or multiple statistic reports refer to portfolios or groups of positions to analyze. Each report may be turned into a relative report with each statistic relative to an index portfolio or group. Examples would be relative VaR, relative stress test, relative PV (to show overweight and underweight a drilldown dimension). Multiple blocks of analysis may on a single page may be defined using the multiple benchmark pair section of the report layout manager. Each block is analyzed separately. Each block collapses (aggregates) to a line item on the report. If the report defines five blocks (five multiple benchmark pairs), then the report will collapse to a five lined report. There is not further aggregation because each analysis is done separately. Each block in the multiple benchmark pair definition has the option to be a relative analysis to an index by checking the check-box for the benchmark and selecting the group of positions that comprise the index.
Users may choose: 1. 2. 3. Add - add a second block to the report. Each block will be analyzed separately and collapse to a single line in the report. Edit - name and select the portfolio or group of positions to analyze. A benchmark or index may be optionally selected for relative analysis. Duplicate - quickly replicate portfolio selection definitions.
In the example, a managed account is to be analyzed relative to the a five country bond index derived from the JP Morgan Global Bond index. Each group of positions is selected by highlighting the position group or Tag dimension that carves out the portfolios needed out of the position database. In this example, we select the account and the benchmark index by highlighting the appropriate portfolio tag. The selection navigation is the same logic that is used in the Position View Actions. Choose the base position and press +select. Choose the Benchmark position and press +select.
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Using Multiple Position Blocks

Some report types allow multiple Position Lists. If only one position list is used, like this group of portfolios vs. the S&P 500
then the resulting report will aggregate the two accounts, generating combined statistics. This may give incorrect results. For example, running Relative VaR and Marginal VaR on the above Position Group would render a report like this one:
Note that the benchmark has been scaled to match the combined value of the two portfolios, which is incorrect. The correct way to generate this report is to add a separate position group for each portfolio:
which would generate a report like this one:
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Using Multiple Risk Settings

A Multi-Risk Setting report allows comparison of statistics across two sets of assumptions. For example, the user may create two sets of Risk Settings with two different Analysis Dates, and run them side by side.
the report will show both columns
The user can measure the change in VaR from one day to the next. However, this report shows how the VaR of one portfolio changes given different Risk Settings. In fact, if some trades were made, a better approach would be to use Multiple Risk Settings and Multiple Position Groups simultaneously.
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Multiple Risk Settings and Multiple Position Groups

To best understand the change from one day to the next, use each portfolio separately, together with each risk setting.
This report
clearly shows that the VaR dropped by $45,322 overnight (diagonally, from $1,087,834 to $1,042,512). The drop was due to: 1. trades which changed the composition of the portfolio reduced the VaR by approximately $10,000 (down the column, from $1,087,834 to $1,077,166) 2. changes in the analysis date of the report, which uses volatility measured one day later, reduced the VaR by approximately $35,000 (across the row, from $1,087,834 to $1,052,857)
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Credit Exposure
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Base Credit Expousre

base credit exposure highlights
LIMITS - the limit for the Goldman counterparty dimension was set by policy to $715MM. The base credit exposure for the report (using the current risksettings) exceeds the limit by $133MM. Ability to extract the highlighted tree (counterparty) "Goldman". Save as "web page complete" in the web browser. "Play" with the interactive report in the next topic.
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base credit exposure layout

Select Statistic - Base Credit Exposure Choose to display as percent or as value. Netting - choose the drill-down dimension that represents the netting structure for this report. Users may add an additional drill-down detail to the report (not netted) and may add detail of the position level. Limits and Horizons will may be shown as an option.
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Base Credit Exposure/Limits/Horzons [credit] Row Dimensions: Column Dimensions: Netting Tag: Netting Hierarchy: Base Positions: counter party netting\businessUnit\positionName statisticName, Limit, Difference counter party netting CounterParty Displaying columns 1 to 3 of 3
SubTree Path: Goldman NameBase Credit ExposureLimitDifference Goldman848,765,719715,000,000-133,765,719 Unit 1252,787,592- Unit 2125,406,007- Unit 3299,512,293- Unit 4171,059,827--
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Expected Credit Exposure

Expected credit exposure highlights
Expected credit exposure is the average exposure across all scenarios. If horizon bucketing is used in the report, then the expected credit exposure is the average exposure of all scenarios in each bucket. Peak of Peaks - The maximum credit exposure of all scenarios and all horizons is reported. Peak of Peaks Term - The horizon bucket in which the maximum credit exposure occurs (highest exposure for all scenarios). In the example below, the "Goldman" counterparty dimension Peak of Peaks occurred in the 6 Month horizon bucket and was 989MM odd. Note that the average exposure (expected credit exposure) was 931MM for the 6M bucket. LIMITS - The ability to set a limit to each netting drill-down dimension. If the dimension is nested, each sub-dimension may have a limit. In the example below, the limit for the Goldman counterparty dimension was set by policy to $715MM. The base credit exposure for the report (using the current risksettings) exceeds the limit by $133MM. Format of limit file used in the example (this file is tab delimited between fields): Counterparty Counterparty Counterparty Counterparty Counterparty JPM 575000000 Merrill Lynch 700000000 Morgan 700000000 HSBC 700000000 Goldman 715000000
Ability to extract the highlighted tree (counterparty) "Goldman". Save as "web page complete" in the web browser. "Play" with the extracted "Goldman" counterparty dimension interactive report in the next topic.
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expected credit exposure layout

Select Statistic - Expected Credit Exposure Choose to display expected credit exposure as percent or as value. Netting - choose the drill-down dimension that represents the netting structure for this report. Users may add an additional drill-down detail to the report (not netted) and may add detail of the position level. Limits and Horizons will may be shown as an option. Users must have previously defined horizon groups and limit files.
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Expected Credit Exposure\credit rating\limits [credit] Row Dimensio ns: Column Dimensio ns: Netting Tag: Netting Hierarchy : Base Positions :
counter party netting\creditRating\positionName PeakOfPeaks, Term, Limit, Difference, maxExposure [Max Credit Exposure]\creditExposureHorizon, statisticName [Expected Credit Exposure]\creditExposureHorizon counter party netting CounterParty -
Displaying columns 1 to 11 of 11
SubTree Path: Goldman

----Expected Credit Exposure
NamePeak Of PeaksPeak Of Peaks TermLimitDifference1M6M1Y2Y3Y4Y5Y Goldman989,529,3316M715,000,000274,529,331877,393,511931,239,933716,604,393289,973,25755,007,387- AA989,529,3316M-877,393,511931,239,933716,604,393289,973,25755,007,387--
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Max Credit Exposure

max credit exposure highlights
Maximum credit exposure is the highest exposure across all scenarios at a given confidence level. If horizon bucketing is used in the report, then the maximum credit exposure is the exposure of all scenarios in each bucket. Peak of Peaks - The maximum credit exposure of all scenarios and all horizons is reported. Peak of Peaks Term - The horizon bucket in which the maximum credit exposure occurs (highest exposure for all scenarios). In the example below, the "Goldman" counterparty dimension Peak of Peaks occurred in the 6 Month horizon bucket and was 989MM odd. Note that the maximum exposure (highest credit exposure) was also 989MM for the 6M bucket (same as the peak of peaks). LIMITS - The ability to set a limit to each netting drill-down dimension. If the dimension is nested, each sub-dimension may have a limit. In the example below, the limit for the Goldman counterparty dimension was set by policy to $715MM. The base credit exposure for the report (using the current risksettings) exceeds the limit by $133MM. Format of limit file used in the example (this file is tab delimited between fields): Counterparty Counterparty Counterparty Counterparty Counterparty JPM 575000000 Merrill Lynch 700000000 Morgan 700000000 HSBC 700000000 Goldman 715000000
Ability to extract the highlighted tree (counterparty) "Goldman". Save as "web page complete" in the web browser. "Play" with the interactive report in the next topic.
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max credit exposure layout

Select Statistic - Max Credit Exposure Choose to display maximum credit exposure as percent or as value. Netting - choose the drill-down dimension that represents the netting structure for this report. Users may add an additional drill-down detail to the report (not netted) and may add detail of the position level. Limits and Horizons will may be shown as an option.
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Max Credit Exposure\business Unit\limits [credit] Row Dimensions: Column Dimensions: Netting Tag: Netting Hierarchy: Base Positions: counter party netting\businessUnit\positionName PeakOfPeaks, Term, Limit, Difference, statisticName\creditExposureHorizon counter party netting CounterParty Displaying columns 1 to 10 of 10
SubTree Path: Goldman ----Max Credit Exposure NamePeak Of PeaksPeak Of Peaks TermLimitDifference6M1Y5Y10Y20Y30Y Goldman989,529,3316M715,000,000-274,529,331989,529,331777,967,200--- Unit 1292,634,1756M--292,634,175211,811,340--- Unit 2149,164,7481Y--146,773,940149,164,748--- Unit 3312,072,4456M--312,072,445171,132,145--- Unit 4245,281,2541Y--238,043,580245,281,254----
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MDI Report
MDI Report Risk and Credit Manager Integration
The RiskManager solution simulates market movements (e.g. FX rates, interest rates, etc.) to determine potential credit exposure (in the money) to counterparties. RiskMetrics CreditManager (CM) simulates defaults and credit quality movements of counterparties. CreditManager enables users to measure counterparty risk based upon: Probabilities of counterparty rating migration and default Exposures the users has against the counterparty
Clients may choose to aggregate counterparty credit risk with their other credit exposures such as the lending book. CreditManager represents counterparty exposures as an exposure profile, called a Market Driven Instrument (MDI). Such exposure profiles can be entered directly into CreditManager or imported from RiskManager. The MDI Report in RiskManager automates the creation of exposure profiles for use in CreditManager. Please also refer to the sections on Expected and Maximum Credit Exposure, and the Credit Manager on-line help, http://cm3.riskmetrics.com/WebHelp/Help.htm
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RiskManager MDI Report set up

In this example, the institutions four desks (Swap, MM, FX, Options) have exchanged positions with a series of counterparties. Netting occurs at the desk level.
Position Statistic Horizon Group Name Netting Netting Display Name
The filter to determine what set of positions to include. This will be used in CreditManager as the portfolio name for the exposures created. Expected or Max Credit Exposure. The name of the field is user-defined, and is not used in CreditManager. Select the exposure horizons group. Choose the drill-down dimensions that represent the netting structure for this report, in this case by desk per counterparty. User-defined name (optional)
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Counterparty Dimension
User must specify the tag that is used to describe the counterparty. The names of the counterparties used must match the respective names of the obligors in CreditManager. The tag used for Counterparty Dimension must also exist in the netting dimensions Users can specify at what level exposures should be created for use inside CreditManager (in this case, desk level exposures for each counterparty). The tag used for MDI Level must also exist in the netting dimensions. In this example, if there are 4 desks that one has counterparty risk to for a particular counterparty, then Selecting MDI Level = Counterparty will create 1 MDI Selecting MDI Level = Desk will create 4 MDIs
MDI Level
On screen you will see the following report
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Passing of Exposure Profiles (MDIs) to Credit Manager

To pass these exposure profiles to CreditManager, RiskManager users must export the generated report in XML format. This can be done in two ways. The first is to navigate to the stored reports page, and then to export the report as shown below.
The second method is to create a batch job to run the report. Please refer to the section on RMClient Batch Application. Export the job, selecting to export the results of the analyses in XML format. Use RMClient to execute the resultant script. The XML format of this report contains a series of MDIs (exposure profiles) that can be then be imported into CreditManager through the screens shown below
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Introduction to CreditMetricsTM
CreditMetrics is a portfolio credit model. It takes information on the individual obligors in the portfolio as inputs, and produces as output the distribution of portfolio values at some fixed horizon in the future. From this distribution, it is possible to produce statistics that quantify the portfolios absolute risk level, such as the standard deviation of value changes, or the worst-case loss at a given level of confidence. While this gives a picture of the total risk of the portfolio, we may also analyse our risks at as fine a level as by exposure. Applications of these analyses include: Determination of the institutions total capital (or risk) usage, Allocation of capital to individual business lines, portfolio managers, obligors, or exposures, Assessment of profitability of product types or individual exposures, Identification of significant risk concentrations or inefficient uses of capital, and Evaluation of potential hedging or investment strategies to optimise the return on risk. In all of these cases, it is important to bear in mind that the value changes being modelled are only those changes in value due to significant credit quality changes (rating changes and defaults) and do not include changes due to moves in the prevailing risk free interest rates, or incremental changes in the spread for a particular obligor or rating. The model itself is best described in three parts: 1. The definition of the possible states for each obligors credit quality, and a description of how likely obligors are to be in any of these states at the horizon date. 2. The revaluation of exposures in all possible credit states. 3. The interaction and correlation between credit migrations of different obligors.
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Market Data Volatility & Correlations

Volatility & Correlation Report Layout
Users must first create a market group. Select Positions->Working with Market Data Groups Use the Market Group Report Layout manager to select the market group from your personal list. Choose: 1. Sharing permissions. 2. Name of the report. 3. Market Group definition. 4. Risk Setting to specify the time-frame for the block of data. 5. Interest Rates vols & corrs will use Yield Volatility if "unchecked" or price volatility if "checked". Important Note: The Risk Settings determines the base of the volatility figures. If a 1-day horizon is selected, then one-day volatilities will be presented. If a one-month horizon is used, then one-month volatilities are reported. The Risk Settings also determine the block of data that is used to calculate the report (just as in a VaR report). In addition, be aware of the decay-factor selected (if any). Cross checking with external systems such as Bloomberg usually require the user to turn off the decay factor and equally weight the data.
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Volatility & Correlation Report

Each time series in the selected market data group will appear in the vol-corr matrix. The time-frame, decay factor, and term of the volatility number is selected in Risk Settings. The data matrix may be viewed or exported in a variety of formats.
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Volatility and Correlation Example
Volatility and Correlations are run for USD/EUR exchange rate and USD Govt 12M. Risk Settings are for 1-year lookback with no decay; reporting currency USD and EUR. 12M USD is converted to Bond Prices at semi annual continuous rates (see p 9 Return to RiskMetrics; The Evolution of a Standard). Daily prices are Natural log changes (see p 22 Return to RiskMetrics; The Evolution of a Standard).
Volatility and Correlation calculated with expected return at zero (see p 14 Return to RiskMetrics; The Evolution of a Standard). Volatility displayed as percent (i.e., 0.5594 implies 0.5594 percent). Correlation is between -1 and +1. Changing reporting currency will change the correlation sign with 12M Govt Curve (see calculations).
Input Screens - Market Data Volatility and Correlation Report
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Volatility Correlation Excel Example

Excel Calculations - Download Spreadsheet (right click and save as) A second spreadsheet which includes the decay factor weighting (Download decay factor version)
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Portfolio Volatility and Correlations

Portfolio Correlations Definitions
Summary This document reviews a report named Portfolio Correlations. The purpose of the statistic is to measure the correlations of positions within one bucket of a specific drilldown dimension against all other buckets, thereby forming a correlation matrix across all buckets. Portfolio Correlations depend directly on the positions being analyzed. Definitions {P} r (d i ) (d i ) (d i ) - set of all positions being analyzed. - vector of simulation returns for the ith bucket of drilldown dimension d from which MonteCarlo of Historical VaR is normally calculated (same as Simulated Returns report). - vector of risk-factor deltas for the ith bucket of drilldown dimension d from which Parametric VaR is normally calculated (similar to Delta Equivalents statistic). - usual risk-factor covariance matrix. - standard deviation for the ith bucket of drilldown dimension d, given by: stdev [ r (d i ) ] for MonteCarlo stdev [ r (d i ) ] for Historical sqrt [ (d i ) (d i ) ] for Parametric.
Statistics and Variations PC (d ij ) - Portfolio Correlation of the ith bucket of drilldown dimension d with the jth bucket of drilldown dimension d, given by: correlation [ r (d i ) , r (d j ) ] for MonteCarlo correlation [ r (d i ) , r (d j ) ] for Historical ( (d i ) (d j ) ) / ( (d i ) * (d j ) ) for Parametric. PB (d ij ) - Portfolio Beta of the ith bucket of drilldown dimension d with respect to the jth bucket of drilldown dimension d. = PC (d ij ) * ( (d j ) / (d i ) ), where the 's are computed consistent with the correlation methodology selected.
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Portfolio Volatility & Correlation Report

The portfolio volatility and correlation report shows the volatility and correlation between positions, portfolios, sectors, or any dimension. In this example, we examine the country correlations embedded in the JP Morgan EMU Index as of June 28, 2002.
Note the Dimension -- Country. By selecting 'country', the report will give us a grid of country correlations and volatilities (in USD). A portion of the report is shown here:
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Simulation Returns Analysis

Simulation Returns Analysis Report
Simulations Returns Analysis allows users to extract the vectors of historical or Monte Carlo returns on any drill-down dimension. Historical returns by date (as specified by the "risk setting"). Monte Carlo simulation return trials (as specified by the number of simulations set in "report setup". Create a tabular report of these return vectors for viewing, printing, or exporting to excel. Slice and dice by any drill-down dimension: region, fund, portfolio manager, currency, or even at the position level. These returns are the basis for VaR calculations. Simulation Returns Layout Manager Control these parameters: 1. 2. 3. 4. Positions set to be analyzed. Risk setting or period over which the underlying time series are based. Historical or Monte Carlo Reurns Drill-down dimension.
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Simulation Return Report Content

Drill-down dimensions are column-wise. Historical return dates are row-wise. Monte Carlo simulation trials are row-wise.
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Market Group Report

Market Group Report Layout
Users must first create a market group. Select Positions->Working with Market Data Groups Use the Market Group Report Layout manager to select the market group from your personal list. Choose: 1. Sharing permissions. 2. Name of the report. 3. Market Group definition. 4. Risk Setting to specify the time-frame for the block of data.
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Market Group Report

Each time series in the selected market data group will appear column-wise. Each historical date is presented row-wise. The time-frame is selected in Risk Settings. The data may be viewed or exported in a variety of formats.
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VaR Histogram Report

VaR Histogram
Select "Histogram VaR Report" when creating a report.
Fill in the Histogram VaR Report form in the Layout Manager.
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VaR Histogram Graphics
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Other Report Topics
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Defining and Running Reports

Defining and Running Reports
The menu choices from left-clicking "Defining and Running Reports" on the report screen allow you to:
Report Menu Choices Create a new report A new report template will be presented. Users can select from several report layout managers. Generate Multiple reports Users are able to select one or more reports to run by checking off the reports they wish to generate. Delete multiple reports - remove reports in bulk. View Saved Reports This choice takes you to a list of saved reports. Reports can be generated and saved for subsequent viewing. Each report is date and time stamped. The saved reports can be deleted. Work with Risk Settings Users can create an unlimited collection of named risk settings: a. b. c. d. Look-back periods (relative or displaced windows in time) Analysis and pricing dates for as-of reporting. Base currency. Decay factors.
Work with Horizons Horizons are used by reports. Statistics such as credit exposure, analysis by cash flow bucketing out the yield curve, or bucketing of instruments by maturity utilize horizons. Three default groups are given (short term, medium term, and long term). Additional custom horizons can be added as necessary.
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Create New Report

Creating a Report
Select a report from the drop-down menu. The report menu is extensible in that java classes can be dropped into the web-application directory tree structure and appear as a selection. For this reason, we call these drop-in reports.
Fill in the Report Layout Manager Form. Note that choices are interactive and will refresh the screen periodically.
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Report Setup
Report Setup Function List
Select Report Setup
Report Control: 1. 2. 3. 4. 5. Displaying of reports immediately or for later viewing. If the selection is checked, the reports will be displayed in HTML in the browser immediately after creation. For later viewing, check the box. Optional notification of when reports are ready. If users have chosen to be notified in "Preferences - User Profile" for message or email notification, they will receive a message when their reports are complete. This setting is useful for generating multiple reports. Optional saving of reports with report name and time stamp. Reports can be saved for later viewing. They will be listed by report name and list a time-stamp of the time and date of run-time. Optional sharing of saved reports with group members. Saved can be shared with group members or viewed privately for security reasons. Optional appending of creator's name to position names - for group users of RiskManager, appending the creator's name to position names makes it absolutely clear whose positions are whose.
Simulation Run - Set the global number of Monte Carlo Trials to be used in this VaR methodology type. Expansion and Contraction Management 1. Client Side - Microsoft IE5 can handle the dynamic report expansion and contraction. This dynamic action can be off-loaded to the web-application server side. Users will notice a "repainting" of the browser screen during the expansion and contraction. The normal setting is Client-side. For large reports with more than 500 drill-down dimensions, IE5.5 will work very hard to display the contents of reports. This is demanding on the users memory and cpu speed. Server Side - Use this setting to off-load the expansion to the server side. Use this setting for more than 500 drill-down dimension items. Users will see the report blank and refill as the server re-paints the screen.
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HTML Column Label Width - Long display names for statistics or other column headings can be trimmed. Users may specify a maximum width by character count. HTML Column Visibility Setting - Users may trim very wide reports to display a specified number of columns in a viewable report frame. The user can page right to view the hidden columns. For those who love wide-body reports, use the setting "display all columns in a single frame".
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PDF Display information - Users can set their global preferences for the exported pdf report layout. Choices for portrait / landscape, paper size, and shrinkage factor are given. Title pages may be deselected.
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Generate Multiple Reports

Generate Multiple Reports
Select "Generate Multiple Reports" from the report task bar.
Check each of the Reports desired and select a function: 1. 2. 3. 4. Generate - Runs each of the checked off reports. Results are displayed to the browser unless the "report setup" declines this option. If the report setup saves reports, then these reports will be time-stamped and stored in the report viewing section. Select All - Checks all report checkboxes. Select None - Unchecks all report checkboxes. Hide Checkboxes - Exits multiple report generation mode and returns to the main report screen (without the checkboxes).
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Delete Multiple Reports

Delete Multiple Reports
Select "Delete Multiple Reports" from the pull-down menu of the report task bar.
Check each report to delete or the function desired: 1. 2. 3. 4. 5. Delete - Deletes all checked reports on this page only. Delete All - Deletes all reports in the report database. Select All - Checks each of the reports on this page as marked for delete. Select None - Unchecks all reports marked for delete on the this page. Hide Checkboxes - Exits multiple report delete mode and removes checkboxes.
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Saved Reports
Viewing Saved Reports
Select "View Saved Reports" from the Report task bar "Defining and Running Reports".
Saved Report List (left click items to view or delete) Note that each saved report shows: 1. 2. 3. 4. Name of the report Time stamp and date. Base positions used for the report. If a group or tag was selected, it will be listed here. Creator of the report (user that generated the report).
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Viewing Saved Reports

Viewing a saved report Select the report to view by left-clicking.
The browser will open the report viewer in a new window. Note that the report repeats the time stamp information. Full graphing and export capabilities are offered with saved reports. The dynamic nature of the tag dimensions works as well.
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Deleting a Saved Report To delete a saved report, select it by left clicking and choosing "Delete Report". The saved report will be deleted from the database. There is no undo function.
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Viewing and Deleting Multiple Reports

Viewing Multiple Saved Reports Select "View Multiple Reports" from the Saved Report List task bar
Check each of the saved Reports you wish to view and select a function: 1. 2. 3. 4. View - Retrieves each of the checked off saved reports. Saved report is displayed in the browser. Select All - Checks all report checkboxes on this page. Select None - Unchecks all report checkboxes. Hide Checkboxes - Exits multiple saved report listing (with checkboxes) and returns to the main saved report screen (without the checkboxes).
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Deleting Multiple Saved Reports Select "View Multiple Reports" from the Saved Report List task bar.
Check off each of the saved Reports you wish to delete and select a function: 1. 2. 3. 4. 5. Delete - Deletes each of the checked off saved reports. Delete All - Deletes all checked reports. Select All - Selects all saved reports on this page marking for deletion. Select None - Unchecks all saved report checkboxes. Hide Checkboxes - Exits multiple delete saved report listing (with checkboxes) and returns to the main saved report screen (without the checkboxes).
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Report Exporting
Report Export to PDF Format
Select Export from the report viewer. Choose PDF format
Select the specific format and orientation of the PDF document.
Browser will show the report in the pdf viewer.
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Report Export to Tab-Delimited Excel Format

Select Export from the report viewer. Choose Tab-Delimited for excel output.
Browser will show the report in excel. This excel can be saved as tab, comma, or xls spreadsheet form.
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Report Export of XML results

Stored reports may be exported into xml during an interactive session. On the stored reports page, left click any report and select export stored report.
The exported format will be XML - portion of xml report shown below. <statResults> <statResult> <valuationSpecName>CHF 1d1yr.94</valuationSpecName> <statisticName>VaR</statisticName> <drilldownName>Chf Risk Type drilldown</drilldownName> <baseBenchmarkPairName>My Base/Benchmark Pair</baseBenchmarkPairName> <resultCell> <currencies>EUR</currencies> </resultCell> <resultValue>323251.446771041</resultValue> </statResult> <statResult> <valuationSpecName>CHF 1d1yr.94</valuationSpecName> <statisticName>VaR</statisticName> <drilldownName>Chf Risk Type drilldown</drilldownName> <baseBenchmarkPairName>My Base/Benchmark Pair</baseBenchmarkPairName> <resultCell> <currencies>EUR</currencies> <maturities> <customDimensionName>Medium-term [Everyone]</customDimensionName> <horizon>5Y+</horizon> </maturities> </resultCell> <resultValue>286739.927937608</resultValue> </statResult>
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Working with Risk Settings

Risk Settings Explained
Analysis date is the evaluation date or analysis date. If you want reports as of quarter-end, you would select June 30th for example. The pricing date in this case would also be set for June 30th as well. However, you could run analysis on June 30th evaluation using a set of prices from 1998. Pricing date refers to the set of prices that all positions will be marked-to-market. If you select July 20th, all positions will be marked against the market data prices of the 20th. Analysis Horizon Analysis horizon sets the time frame over which Value-at-Risk is calculated. For example, if it is set for one-day, the VaR numbers would be how much money you could expect to lose in one day at a specific confidence level (i.e. 95% corresponds to 1 in 20 days). Return Horizon Instruct RiskManager to compute volatilities and correlations directly from multi-day returns thus eliminating the need to scale 1-day returns by the square-root of the analysis horizon. The default is 1 day. Time Series Dates Time series dates corresponds to the period in time that time series volatilities and correlations will be calculated. For example, if you set this to 1Y, a relative look-back period of one year will be used. Note that the dates are shown. The dialog box entry can be set to a period of months or years. In addition to relative look-back periods, users may want to select a specific time period window from the past. On reason this would be useful is if you want predictive stress testing to use correlations from an unusual time in the markets. Recent interesting periods might include the summer of 1998 or the spring of 2000 where dramatic market moves correspond to time series correlations that differ from quiet market periods. Decay Factor What decay factor level should be used? If the dacay factor (df) is larger, the volatility (or RiskGrade) is more stable. tomorrow's vol = yesterday vol * df + (today return) ^2 * (1-df) RiskMetrics' research group has done a number of tests to determine which decay factor is best for forecasting future vol. While a decay factor of 0.94 is best for overnight, a decay factor of 0.97 is better suited for longer term horizons. A decay factor of 1.0 will equally weight all data and is equivalent to a setting of "None". Base Currency - sets the look and feel of the application. All reports and monetary figures are presented in the base currency.
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Navigating to Risk Settings

From the Report screen, select "work with Risk Settings".
Brings you to "Working with Risk Settings".
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RiskManager Volatility and Correlation Computations

Analysis Horizon and Return Horizon
This document describes the following settings that control RiskManagers computation of volatilities and correlations: analysis horizon, return horizon, and decay factor.
One Minute Manager Summary

Analysis Horizon: is the distance into the future you wish to extrapolate the risk. To see how much you could lose in the next year, use 252 (business) days. Return Horizon is the frequency of the return observations you wish to use to generate statistics. If your database has daily observations in the market data (this is typical for DataMetrics data) then you should leave this at 1 (for one-day).
Overview
RiskManager computes VaR based on the volatilities and correlations of underlying risk factors such as equity prices, discount factors and even implied volatilities. Since the early days of RiskMetrics, volatilities and correlations were always computed based on the 1-day returns of those risk factors. This is completely appropriate for computing 1-day VaR results. The analysis horizon setting allows users to generate VaR for longer time periods such as 5, 10, 22, or even 250 business days. RiskManager typically accomplishes this by scaling all risk factor volatilities by the square-root of the analysis horizon. [Note that VaR itself is never directly scaled, only underlying risk factors, assumed log-normal, can be scaled. This is because non-linear instruments, such as options, result in highly non-normal portfolio distributions from which VaR is calculated. Instead, scaled returns can be used by RiskManagers full-valuation engine to produce VaR for analysis horizons greater than 1 day. The resulting VaR does not follow the square-root-of-time rule.] The square-root-of-time method, as it is called, has been a standard of the RiskMetrics methodology since inception. This method works well if risk factor returns truly follow a standard log-normal distribution. But if risk factors tend to regress to their mean or otherwise drift then the square-root-of-time method may not be appropriate for the estimation of longer-term volatiltities. With the release of RM 3.5, users can now instruct RiskManager to compute volatilities and correlations directly from multi-day returns thus eliminating the need to scale 1-day returns by the square-root of the analysis horizon. This feature is controlled by the return horizon setting which, by default, is set to 1 business day.
Benefits
There are two very important benefits of the return horizon setting. The first is that square-rootof-time scaling is no longer required to compute 5-day, 10-day, 22-day, etc., VaR. Simply set return horizon to 5 days, 10 days, 22 days, etc., in order to directly compute 5-day, 10-day, 22day, etc. returns. This use satisfies a very long-standing request from clients who want to compute longer-term VaR without the need for scaling.
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Note that analysis horizon and return horizon can be set independently. RiskManager automatically scales returns as appropriate. For example, to compute 10-day VaR RiskManager can either scale 1-day returns by the square-root of 10 (traditional), 2-day returns by the squareroot of 5, 5-day returns by the square-root of 2, or use 10-day returns without any scaling at all. Each combination should give slightly different answers depending on the nature of the applicable risk factors. If the analysis horizon were set to less than the return horizon then inverse scaling would be applied. For example, RiskManager can compute 5-day VaR by scaling down 15-day returns by the square-root of 3. Any combination is allowable provided there is sufficient data. One popular combination is to use a 22-day return horizon (1-month) to compute 264-day (1year) VaR. Scaling is therefore by the square-root of 12. For 1-year VaR this is perhaps more appropriate than simply scaling 1-day returns by the square-root of 264. In principle one could use 264-day returns to compute 264-day VaR but 50 years of data would be required. Scaling 45 years of monthly data seems like a good compromise. The second important benefit of the return horizon setting is that it allows RiskManager to work with non-daily data. Recall that RiskManager automatically forward fills missing data to ensure an observed price is available every weekday regardless of holidays. If one were to enter a weekly time series into RiskManager then system would fill forward 4 out of every 5 days. This causes returns to follow a pattern of 4 days flat followed by a 1-day spike. Volatilities and correlations computed in this fashion are meaningless. But if return horizon were set to 5 days then RiskManager would sample this weekly data at its natural frequency therefore producing completely valid volatilities and correlations. In this fashion daily and weekly data can be processed together. Note that this works because RiskManager samples daily data on a weekly basis thereby effectively converting it to weekly data. The reverse is not true. RiskManager cannot convert weekly data into daily data. In general return horizon should always be set to the longest-period data to be processed. For example, if mixing daily, weekly, and bi-weekly data, return horizon should be set to 10 days. Care must also be taken to ensure that analyses are performed as of days in which all data exists. This ensures accurate correlations between all risk factors. For example, if mixing daily data with weekly data based on Friday closing prices then all analyses should be performed as of that Fridays close of business.
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Business Day Conventions and Sampling Frequencies

The settings for analysis horizon and return horizon are always in terms of business days. According to DataMetrics standards a business day is any weekday (Monday-Friday) regardless of holidays. VaR for periods of 1 week, 1 month, and 1 year are therefore best computed by setting the analysis horizon to 5 days, 22 days, and 264 days, respectively. Setting the analysis horizon to 31 days results in an overstatement of monthly VaR. Because 5 business days always equals 1 calendar week setting return horizon to 5 days ensures a weekly sampling period such as every Wednesday depending upon the analysis date. But since there are not a fixed number of business days in a month it is not possible to exactly match a 1-month sampling period. A return horizon of 22 days will slowly rotate around the calendar as long and short months are encountered. When sampling daily data on a monthly frequency this prevents no problem as there is always data available with the exception of weekends at which time RiskManager forward fills the previous Fridays price. But if the data to be sampled is truly monthly (such as end-of month NAVs) then at some point 22-day sampling will get out of sync with the actual data. In a future release of RiskManager this issue will be addressed by allowing users to specify true one-month sampling. For return horizons greater than one it is important to realize that return samples are contiguous. That is, they do not overlap. One year of data contains about 264 daily-return samples, 53 weekly-return samples, but only 12 monthly-return samples. For large values of return horizon (such as 22 days), at least 3 years of data are required in order to obtain reasonable statistics. Also note that when return horizon is set to any value greater than one the analysis date itself can affect volatility and correlation computations since different sets of returns will be used each from one day to the next. For example, if a particular risk factor had a valid spike somewhere in its past then that spike may be passed over for some combinations of analysis date and return horizon but be present in others.
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Decay Factor and Zero-Mean Assumptions

Volatilities and correlations can be calculated with or without a decay factor even in cases in which return horizon is set to a value greater than one. When a decay factor is set it always refers to the decay of each return sample versus the next regardless of the number of days between samples. For example a decay factor setting of 0.94 used in combination with a return horizon setting of 5 days results in a 100% weight being given to the return sample from the most recent 5-day period, a 94% weight given to the previous 5-day period, and so on. For direct comparison of results using different return horizons it is therefore best not use a decay factor in order to ensure all returns are equally weighted. In computing volatilities and correlations RiskManager normally assumes the mean of all returns samples are zero. This is in accordance with the original RiskMetrics methodology and is justified by the fact that 1-day return means are generally insignificant in comparison with sample volatility. However, for return horizon settings greater than one day this may not be the case and RiskManager therefore includes the sample mean in all calculations with the following caveat: The sample mean is included only if the decay factor is set to 1.0 (no decay). If a decay factor is present, or if return horizon is set to one day, then the zero-mean assumption is made as usual.
Note that VaR itself is never directly scaled---only underlying risk factors, assumed log-normal, can be scaled. This is because non-linear instruments, such as options, result in highly non-normal portfolio distributions from which VaR is calculated. Instead, scaled returns can be used by RiskManagers fullvaluation engine to produce VaR for analysis horizons greater than 1 day. The resulting VaR does not follow the square-root-of-time rule.
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Creating a Risk Setting

Working with Risk Settings
Select "Create a new Risk Setting" from the pull-down menu on the "Work with Risk Settings" task bar on the Risk Setting Screen.
Unlimited groups of risk settings may be saved and stored by users for reporting. Risk Settings: 1. 2. 3. 4. 5. 6. Analysis Date Pricing Date Analysis Horizon Time Series dates defining the look-back window. These dates may be relative to the current date or absolute to fix regimes such as highly volatile or periods where market correlations were abnormal. Decay Factor applied to market data (exponential damping factor). Base currency
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Risk Setting Ideas

Multiple Risk Settings are a powerful tool. Several themes of usage come to mind. 1. Alternative "high volatility" or correlation breakdown look-back periods. Think of various periods in the markets where volatility was higher than the norm or where correlations broke down (or both). VaR numbers calculated using these "high vol" periods will probably be higher. It is interesting to see how much higher. You are doing sensitivity analysis on the VaR numbers Alternate analysis dates. By moving the analysis date but maintaining the same pricing date, one can see the effects of aging on the current position set. For example, if you have an option portfolio, by checking different analysis dates in the same report you can see the effect of moving toward expiration without changing the underlying price. Alternate pricing dates. By moving the pricing date but maintain the same age of the position set (by keeping the same analysis date). This is backtesting. Alternative decay factors - Moving the decay factor to 1.0 equally weights the data. RiskMetrics recommends 0.94 decay for 1-day horizons as the best predictor of losses. For monthly horizons, RiskMetrics recommends 0.97. Users can do sensitivity analysis of the decay factor by using alternate decay factors in their risk settings. Alternate reporting currencies - Multinational money manager can report multiple currency results within the same report. Alternate horizon periods - Users can change the number of days or months of the horizon period. Multi-period results are scaled by the square root of time.
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3. 4.
5. 6.
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Delete Multiple Risk Settings

Delete Multiple Risk Settings
Select "Delete Multiple Settings" from the "Work with your Risk Settings" task bar.
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Working with Horizons

Working with Horizons
Select "Work with Horizons" from the Report Screen
Horizons are groups of dates relative to today's date. They are used in risk reports: 1. By yield curve analysis - Fixed Income risk reports can be viewed by cash flow out the yield curve. The "By yield curve" is a drop-down selection in the report layout manager. For example, one might want to group together 0-3 month risk, 4-6 months, and 7-12 month risk exposure. For this report, one would define a horizon group to consist of a 3 month date, a 6 month date, and a 1 year date. Maturities - Examining fixed income instruments by horizon groups grouped by their maturities. An example is shown in the topic "Bond Portfolio Summary". Credit Exposure - One might want to view the peak credit exposure to counterparties out to various time horizons. For example - out to one year, two years, or even five years.
2. 3.
Horizon Group List Screen Lists all your stored horizon group definitions. There are three RiskMetrics default (read only) horizon groups to get users started: 1. 2. 3. Short-Term - consisting of 1 month, 3 months, 6 months, 9 months, and 1 year horizon dates. Medium-Term - consisting of 1 month, 6 month, 1, 2, 3, 4, and 5 year dates. Long Term - consisting of 6 months, 1 year, 5, 10, 20, and 30 year dates.
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Creating Horizon Groups

Creating a Horizon Group
Select "Create Horizon Group" from the pull-down menu on the task bar of the Horizon Group List. The task bar is underlined "Setting your Horizon Group Lists".
This action brings us to the Horizon Group Editor.
Step-by-Step, we can create a Horizon Group A - Horizon Group Name - User defined label for the horizon group name. B - Add Horizon value - Numerical value for the horizon time period to add. C - Add Horizon Term - Horizon term period (days, months, or years). D - Add button - adds the horizon term value into the list. E - Horizon term list - list of time horizons which defined the named group
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F - Save & Reset buttons - Save stores the named group in the Horizon List. Reset flushes the horizon list in E.
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Delete Multiple Horizon Groups

Deleting Multiple Horizon Groups
Select "Delete Multiple Groups" from the Horizon Group List task bar "Setting your Horizon Group Lists".
This adds in the multiple delete navigation buttons. Read-only default horizon groups cannot be deleted. 1. 2. 3. 4. 5. Delete - check the horizon groups to be deleted. Pressing delete removes the horizon groups marked for delete from the database. Delete All - Deletes all user-defined horizon groups from all pages. Select All - Selects all horizon groups to be marked for delete on this page only. Select None - Deselects the horizon groups marked for delete. Hide CheckBoxes - returns to the Horizon Group List
Selecting delete as an action must be confirmed. Read only items will not be deleted. This action cannot be undone.
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Working with Market Data Groups

Creating a Market Data Group
Location of Market Data Groups: Reports->Working with Market Groups Select "create market group" from the menu choice. Choose each time series - example shown is a collection of FX spot time series.
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Legacy Reports
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Single Statistic Report

Single Statistic
Select "Single Statistic" when creating a report.
Fill in the Single Statistic form in the Layout Manager.
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Graphics and Charts

3D Data Charts
Columns vs. Rows
The data plot is shown with columns (the labels along the lower-right side of the chart), rows (the labels along the lower left, and values (the numerical labels along each vertical side of the chart). The columns are the same as the columns in the RiskManager report. The rows shown will depend on the level you have drilled down to.
Pagination
If there are more rows than will conveniently fit on a given page, page shifter buttons are displayed at the bottom of the chart. These allow the user to shift to the rows of interest.
Display Options (Shape type)
There are three shape type buttons at the top of the Selected Items list. By clicking one of these, you will change the shape of all items on the chart to match the indicated shape.
Hierarchy Navigation
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As in the pie chart, you may click on any object to drill down in the report hierarchy. This will expand the row categories, leaving the columns the same, just as in the original report. If you wish to move back a category, click the category name in the Selected Items list, or click the Move Up button.
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Pie Charts
Drilling Down the Report Hierarchy
When it is first displayed, the pie chart represents the first level of the report hierarchy. From here, you may drill down within any slice by clicking on it, just as you would drill down on a report row. The name of the originally selected slice will be listed with its value in the Selected Values section on the left side of the screen. To move back a level, click the Move Up button in the Selected Values area of the chart.
Display Options (Transparency, Extrusion, Rotation)
To mark any particular slice as transparent, click the colored box next to its label in the Legend area. To extrude a slice from the pie, click the pie icon next to the colored box. Click on either button again to reverse the effect. To find a slices label, move the mouse over the slice, and the label will be highlighted. Use the rotation arrows at the bottom of the chart to rotate the display of the chart around the central axis. Any changes made to the display options will be saved in an Exported pie (see Exporting Graphics).
Negative values If a report contains negative values, two pies will be displayed, one with positive values, and one with negative. The positive values will be listed before the negative values in the legend of the chart. The pie with the smaller set of values will be scaled relative to the other (e.g. if you are long 1M and short 500,000, the negative pie will be half the size of the positive one).
Whole-pie options
The bar above the Selected Values section holds a number of buttons that perform actions on all slices at once. From left to right they are Display in 3D, Display in 2D, Extrude/Intrude all slices, Make all slices transparent/solid. The export function is described in Exporting Graphics.
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ScatterPlots Charts
Mouseover
On mouseover, the values for the highlighted dot are shown in the following order: X Dimension, Y Dimension, and (optionally) Size Dimension.
Search
Click the Search button to search through the names of the points on the current chart. For example, if you have a chart of Govt and Swap Rates, putting GOV in the search bar will highlight the government points (search is case-insensitive).
Point Size
If the user selected the Use Size Dimension in the chart setup system, then the dots will be of various sizes based on the values of the dimension chosen. Click the Legend button to see the start and end values of the various sizes. The window may need to be resized to match the exact sizes of the dots.
Zooming
Click the zoom button followed by a point to zoom in on that point. The chart will be rescaled to show the area that was one quarter of the original chart area around that point. Click the Unzoom button to reset the original zoom ratio.
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Hierarchy Navigation
You may click on any point to drill down in the report hierarchy. This will create a new plot showing the children of the selected point. If you wish to move back a category, click the category name in the Selected Items list, or click the Move Up button.
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Market Data Line Charts

Date Marker
As you mouse over the chart, a black line running from the top to the bottom will follow the mouse cursor. This line shows the date represented on the legend. The value of all lines under the date marker are shown on the legend. If you mouse-over a line, a marker will appear with the value for that line on the selected date.
Display Options (Log Mode, Normalize, Points)
In log mode, the chart is shifted to a base-10 logarithm scale. When normalized, all lines start their history at 1, then show the growth of a dollar, or percentage increase, from that point. When the points option is selected, a dot appears at each point where there was an actual data point (Note: the points option is ineffective and time consuming unless the chart is zoomed to a point where there is significant space between each point, on a time series, this is the 4-5 month level). Additionally, there is an option to not display the legend if you wish for the chart to have more vertical space.
Zooming
To zoom in a certain section of dates, click on the chart when the desired start (or end) date is highlighted in the legend bar. Move your mouse until the desired time range is highlighted, then click again. If you want to get the chart back to the original state after zooming, click the "UnZoom" button in the upper-left corner.
Show/hide, and Remove Lines
By using the buttons in the legend, you can hide or show and remove elements from the chart. Click on the colored square indicator to hide a line. The square will become transparent to indicate that the element is currently hidden. To remove a line from the chart, click on the circle filled with the X. The line will be permanently removed from the chart, and if it was the top or bottom line, the chart will be rescaled to better display the remaining lines.
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HeatMap Charts
General HeatMap Info
A heatmap has two dimensions, area and color. The chart is divided so that the area of each rectangle is proportional to its value in the dimension chosen to represented by area. The vertical/horizontal alignment of the rectangle has no meaning, as it is only chosen to create the best fit for all values in the chart. The color values are set along a spectrum running from green to red, with green representing the low end of chart values, and red the high end.
Drilling Down the Report Hierarchy
When it is first displayed, the heatmap represents the first level of the report hierarchy. From here, you may drill down within any cell by clicking on it, just as you would drill down on a report row. The name of the originally selected cell will be listed with its value in the Selected Values section on the left side of the screen. To move back a level, click the Move Up button in the Selected Values area of the chart.
Search
Click the Search button to search through the names of the cells in the map. For example, if you have a chart of Govt and Swap Rates, putting GOV in the search bar will highlight the government cells (search is case-insensitive).
Mouseover
On mouseover, the values for the highlighted cell are shown with the area dimension followed by the color dimension.
Negative Values
If there are negative values in the report being considered, then they will be listed in a separate map below the positive map. Example HeatMap Chart
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Histogram Charts
Bins
The colored vertical bars represent bins of values. The bins are evenly split between the highest and lowest values into equal-sized tranches. The size of the bin shows the number of elements held in that bin. By mousing over a bin, you get the start (lowest) and end (highest) values that fit into that bin. By clicking on the bin, you get a list of all the values in that bin. Click on the bin again to close the list. You may adjust the number of bins by clicking on the Set Bins button on the control panel. The bins will rescale to the number of bins you select.
Display Options (Frequency/Count, Curves)
You may display either Frequency (percentage occurrence) or Count (number of trials) on the y axis by selecting the appropriate radio button. There are two curves you can display to compare with your histogram, the Normal curve, and the Kernel Distribution, which is a fitted Normal.
Quantiles
The square boxes with numbers above certain bins are quantile indicators. A 95 quantile indicates that 95% of values lie in the indicated bin and the bins to its right, and 5% lie in the bins to the left. The colors of the bins are based on the number of quantiles. The left-most bins are red, the right-most green, and the colors shift with each quantile. Click on a quantile indicator to bring up the quantile menu. From the quantile menu, you have four options. You can add a new quantile of any percentage value. You may remove the quantile you clicked on to bring up the menu. You can zoom in to show all the values to the left of the quantile, which will re-bin them with the number of selected bins. Or if you are zoomed, you may return to the original fully unzoomed view of the Histogram.
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Exporting Graphics
All report charts have an Export button that will allow the user to access the chart in its current format (any user interaction will be saved) as a JPG or in the standard report PDF. When Export is clicked, a process is kicked off performing a conversion of the chart from the current SVG format to JPG. A note to this effect is shown and the user is given the option of continuing or jumping straight to the Stored Image page. On the Stored Chart Image page (which can also be accessed by the button of the same name on the main report screen), the user has two options. They may change the order that the charts will show up in the Exported Report PDF, as well as delete charts that are no longer needed. They may also click on the thumbnail of any chart to bring up a full sized JPG, which may be saved and copied into Word, or edited with a Graphics editing program. When the user runs a PDF Report Export with chart images exported, the images will be placed in the PDF report in the selected order after the main report body and before the appendices.
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Batch Control
Work with Batch Jobs
Batch processing automates routine tasks such as importing of market data and positions, as well as the production of reports. All users have permission to create batch jobs. The ability to schedule batch jobs is limited to those users who have administrative privileges. A user can find out if they have administrative rights by checking their top menu bar. If access has been granted, the top menu bar will include a selection called Administration All users may use a utility RMClient to execute batch jobs without the needing the Administrator to schedule the job. Batch jobs may be run on-the fly from any remote computer. All users may schedule the RMClient utility to run at pre-determined times by using the Microsoft Scheduler. From the Start button, select Programs->Accessories->System Tools->Scheduled Tasks.
To create an automated task a user clicks on Reports and then selects Work with...Batch Jobs from the drop down menu.
The Batch Jobs Screen will appear and have all previously created batch jobs are listed. In the example below, the user has one batch job called 'FuturesOptions'.
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Create a Batch Job

From the Batch Job List Screen, define a new batch job by selecting Create a new Batch Job from the drop down menu.
Create a new Batch Job opens a window labeled Download and Import data Batch Job Definition. This screen requires the user to define what task or tasks he or she would like to automate. A wizard aids in the task of creating the batch job sequence. (screen shown below)
1. 2.
Name this batch job task so it can be scheduled later. A descriptive name such as Import of daily market data and production reports will help identify this job during the scheduling process. Notify me checkbox. A log of the events that occurred during the run will be emailed to the user if this box is selected. In addition, the user may have desired a message to be sent upon notification. These notification selections are done in the User Profile Tab of Preferences. The notification presents the user with a log of the batch job status.
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3.
Choice for file import. Here the user selects one or more position files. When selecting the position files, the user needs to make sure the position file names are the same each day. For example, fxhedges.xml can be set to run each day. A dated file such as 20010923.fxhedges.xml would not import since the changing date would not be picked up by the system. See the example of a position file import. (Administrators only) Administrators will see a radio button for Download DataMetrics market data. This is the most heavily used automation task. By selecting Yes the Admin's batch job will process the daily downloads of subscribed time series from RiskMetrics through http protocol when the batch job is scheduled.
4.
Client imported market data or position data is loaded into the users file system. The files are stored in the RiskManager database (RMDB). The user can load any type of file into their file system. When the batch job is created, the user links up each loaded file with the specific import task. At run-time, the file is checked for proper format.
Users can import various file types:
1. 2. 3. 4. 5. 6. 7. 8.
Position files. Stress Tests Limit Sets (for Credit Exposure reports only {RM3.3 and higher}. Stress Tests. Commodity price data. Currency FX Spot data. Curve data (Fixed Income Yield curves) - constant maturity zero coupon spot rates. Equity price data
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Batch Job Position Import

Users may automate the import of position data. If "Notify me" check-box is checked, an import log will be placed in a message or email if the notification box was checked for the batch job. This message or email will show any errors. This topic is covered in batch notification and logs. When creating the batch job, select the +Add button to select position files to import.
Clicking +Add will open the import file screen. Users may specify: 1. 2. 3. 4. 5. File to import - either upload on the fly or from the users personal file system. Set sharing permissions to private or shared. Set the file type to import - for this example, it is a position file. Set the file format (XML, or delimited). Set any delete action on existing Records - either deletion by group or tag dimension or a smart delete by tag. The smart delete will delete only the tag values seen in the import file. For example, if you auto-delete on the tag dimension portfolio then only the portfolio names encountered in the import file will be deleted from the position already loaded into RiskManager. Let's say that everyday we want to analyze the risk of two portfolios a) bond futures, and b) bond futures options. If we set the import to auto-delete on portfolio then only the two portfolios (a) bond futures and (b) bond futures options will be deleted. The users other portfolios already loaded into RiskManager will be unaffected.
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7.
Action on existing records - tags can be added on-the fly by entering the list:
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8.
Set the uploaded file compression format (if any).
Each user has his their own File System directory to work with. Batch control can import any position file that is already in the file system directory. The import file dialog allows the user to upload file to the file system area -- but this upload is not automated. In the import dialog shown below, the pull-down menu of File to import will show all files in the file system for the current user. Here we are uploading a position file. The user must select the format of the file (XML, csv, or tab delimited).
Uploading a position file to the File System manually involves browsing to the files from the user's system and selecting these files from the file system directory (shown below).
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To upload a file, see the topic File System
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User File System

Each user has their own file system directory in the RiskManager database (RMDB). In the directory structure below, we are focusing on user FuturesOptions. 1. Directory tree Home which serves as the users root directory. 2. Under Home is our position file labeled "bondFutures.xml".
Left Clicking the Home directory will show a menu of file system commands.
File System Directory Commands: 1. Create a new file - allows the user to create a new named file item. The user can then upload a file to this named item. Until the user uploads to the file, the file item is empty.
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2.
Create a new folder - sub-directories can be created to organize your work.
3.
Upload to this directory - browse on your local computer to upload the position or market data.
Left Clicking a file will allow users to select a file already in the user file system, delete, rename, and export from the user file system to as local computer file.
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Batch Job Client Data Import

Users may also want private data to be loaded into the Market Database on a daily basis. If "Notify me" check-box is checked, an import log will be placed in a message or email if the notification box was checked for the batch job. This message or email will show any errors. This topic is covered in batch notification and logs.
If the data files are not yet in the user file system, browse to their location and upload them. For additional information on the user file system and how make files visible to the user, see the topic User File System.
Uploaded files will show a success/failure dialog.
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Bach in the batch job file import screen, use the drop-down selector to choose the data files to upload. Match the File type with the second drop-down chooser (shown below).
The batch wizard will then show the selected file as marked for import.
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Batch Job Reports

The next screen of the batch wizard on reports after the data or position import section.
The user needs to already have created some reports in order to see reports that can be run (See section in Help Menu on Defining Reports). The reports can either be personal or shared. Once completed, the user hits the save button and the batch job is complete.
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Batch Notification and Logs

Each users has a message icon in the upper right hand corner of the main screen.
If the user selected "notify me" in the their batch job, and completed the setup of what type of notification is desired (in user preferences - user profile). Both the email and message will contain the logs of batch jobs. The message is from "System" and appears like this:
Left-clicking the entry and selecting "View" allows the user to read the batch log. Batch Log Message Header contains summary information In this case, our "badfile.csv" portfolio file contained equity positions. At the time this file was loaded, the system database didn't contain any historical equity data. Therefore, all positions in this file were rejected.
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Batch Log Message details - Below the header information, the import log message contains details on what occurred and reported specific error conditions.
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The log is a web page. The contents of the log describe the process that was run and the files imported. Here we did a position import. The file is being picked up from our user file system. For user "Keith", his file was badfile.csv located in his file system. In our example, we purposely imported a position file with equities we didn't have in our market database. Each of the position lines with a problem are shown as a line item in the xml log. Cannot map equity positionswithout equity price data in our Local Market database (RMG_LMDB). If the Preferences -user profile chose to have an email sent from which the user could print or store this message log. From the web-page message, the user can right click and 'select all', copy, and paste into another document.
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Admin Batch Sequences

Batch jobs will not run until they are scheduled. Only users who are members of the Administration group can schedule batch sequences to run. All users may run batch jobs remotely by using the RMClient utility. This utility gives users the ability to run batch jobs at any time without contacting the administrator. The administrator only needs to be involved to export the sequence for the user's use in the RMClient utility.
Administrators Only - Batch Sequences and Scheduling - from the admin users "Administration" Screen, left clicking task bar and selecting Batch Sequences.
On the Batch Scheduler screen, sequences can be created and saved. should be selected to schedule a new job.
Create a Batch Sequence
A new window called Batch Sequence Definition allows the user to select how and when the task is scheduled.
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The top left box requires the user to select a schedule time.
The default selection is Do not schedule now. By clicking the Edit key the user will select: 1. 2. 3. 4. immediate daily weekly monthly
B The top middle box contains the Batch Job list The administrator will see all jobs that were created and the login ID of the creator. The administrator can schedule one or more of these jobs to run.
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C The top right box shows other task sequences available to the user which can be included in the sequence that is being created. (i.e. to create nested task sequences). (Note: Circular references are prohibited)
Recommended: The administrator should prepare a sequence Run Immediately to make sure the tasks complete as anticipated.
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Admin Batch Market Data Download

Only Members of the Administration Group may download data from RiskMetrics DataMetrics Servers. Users can also import their own market data. For more detail, see the topic Batch Job Client Data Import. The DataMetrics download must first be configured. See the topic Administration Download Preferences. This sets up the DataMetrics username, password, and proxy server settings. The admin batch wizard screen is shown below. To download RiskMetrics data, merely select the "yes" radio button for downloading DataMetrics market data.
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RMClient Batch Application

RiskManager Batch Client Architecture
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RMClient Download & Setup

Using RMClient to run Batch Jobs in RiskManager from any Remote Machine.
RM3.6 RMClient Application

RM3.6 RMClient Application installer (zipped file for sensitive fire walls). Important Note: RiskManager 3.6 requires users to log in under a domain. This will require hand editing of any existing RMClient 3.5 scripts to provide the domain information before they can be used with version 3.6. An example is presented here: RMClient 3.5 format: RMClient 3.6 format: LOGIN user="JJones" xpwd="ih2tsx8Baew=" LOGIN user="JJones" xpwd="ih2tsx8Baew=" domain="003"
The Java RMClient may be used to upload files (positions, market data, stress tests) from any remote computer into the RiskManager, run reports and retrieve these reports into the same remote computer. Since Java applications max at 64 MB of memory (there is an override to access more memory), RMClient can safely work with additional workstation memory. This set of pages describe the steps required to run the utility and it assumes that the reader is familiar with RiskManager and has used it interactively. To run this utility the following are required: 1. On the workstation where the RMClient will reside (and therefore position file exists or reports extracted) we need Java RunTime Environment installed, as the RMClient needs Java to run. The Environment (JRE) available directly RiskMetrics Help Resources j2re-1_3_1_04-windows-i586i.exe; Please install this by following the default settings. 2. You will need the Java RMClient file (this may be obtained by contacting Riskmanager.support@riskmetrics.com) to reside on the machine where the positions are held; please unpack this zipped files. Although you can unpack it in any directory, for transparency we recommend that the unpacked files reside in C:\RMClient. This would be done automatically if within WinZip if "use folder names" is selected; see picture:
3. 4. 5.
You will need to make sure that the command for the RMClient is run from within the directory where the RMClient resides (in my case C:\RMClient\) or specified within a batch file that can be run by Windows Scheduler within this window. Batch jobs to import positions or run reports can be set-up by any user with a valid username and password. Make sure that under "Download Preferences" within RiskManager is correctly configured to the right IP address and port. (You will Download Preferences under Administration Window and is only available to a user with Administrator rights).
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RMClient Step1
Step 1. Choose "Work with Batch Jobs" from Reports
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RMClient Step2
Step 2. Create a File within the File system. This is important as this creates the virtual file system within the database (you will not be able to choose files without doing this). You can call this file anything you like but best to keep to names that best describe it (for example, *.txt for text files, *.rml for xml files). Since I am going to be uploading positions file in RML format I have named it "PositionFile.RML"
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RMClient Step3
Step 3: Create a New Batch Job from within "Working with Batch Jobs". Name the job (I have named it "uploading Positions") and then press, "Add"
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RMClient Step4a
Step 4a. On the next screen browse on the "Edit" button to upload the file existing in your virtual file system. In our case we have to choose PositionFile.RML that I have uploaded earlier. Choose to "Use this file". To complete the details of importing, choose Permission (shared or private), file type (Positions in this case) Note that there are a whole hosts of other files you could upload via this process but it is important to correctly specify these files otherwise you will receive an error. Other choices allow you to delete existing positions (either all or by tags), add tags (if you want to add any) and whether the file is compressed (RiskManager would automatically unzip) and whether you want to save import and log files within the file system for later viewing. Save this window by pressing "OK" and then choose "Finish" in the next screen if all you want to do is Import Position. However click "Next" if you also want to run reports within this same batch job - see Step 4b below.
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RMClient Step4b
Step 4b. If you want to also run reports within the same batch job then rather than clicking on "Finish" click on "Next" to take you to the next screen. Here you will be given a choice of Reports you want to run. In this case reports "correlation and vol" and "PV VAR IVAR MVAR" are chosen by placing a tick next to it and then click on "Finish" to complete setting up the batch job.
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RMClient Step5
Step 5 From within "Working with Batch Jobs" click on the Batch Job just created select to Export Batch Job. Note: You have a choice to run the Batch Job immediately but this would only work if you have already uploaded the file to import within the virtual file system. Since the steps described here have not done so, running immediately will result in an error.
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RMClient Step6
Step 6: The Export screen will bring up the Configuration Screen. Within this screen you need to set parameters. Delay: Refers to the time after which the RMClient will go and look for the created report from RiskManager Server to your workstation. If no report is created within your batch process this element has no meaning. However, if you are creating a report it is important that the delay is set to err on the side of giving extra time; reason: if you run this on a daily basis then the RMClient will find the already existing file (say from yesterday) and pick this up. However if there are no files present then when it goes to look for the created file and does not find a file it will go back after "Interval" minute; Interval: Refers to the interval in minutes whereby the RMClient will again look for Report file in the RiskManager Server if it did not find it in its last search. Max. Tries: Refers to the maximum number of tries the RMClient will go back and look for the file in RiskManager Server. If the report is not completed after it reaches the maximum tries then the RMClient will not pick up any files (although the report would be saved in RiskManager if this is one of your settings within RiskManager). Create Time Stamped Directory will create a new directory within your workstation directory where the reports are kept but with Time format for easy identification. If this is not selected then previous reports with the same name are simply overwritten. Again, if you have only imports then do not select this as it will create an empty time stamped directory. PDF/TAB/XML/Web Archive refers to the format of the reports to be saved.
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RMClient Steps7-9
Step 7: Now you need to export the batch sequence so that you can put in the information where the file to be uploaded resides; click on "Export" and save it to RMClient Directory. The name of the file would be taken from the name of the batch job (although you can rename this). Step 8. Open the saved file (in my case in C:\RMClient\Uploading_Positions.cfg) in notepad and look for PUT SRC="%BASEDIR%/PositionFile.RML" dest="/PositionFile.RML Change this to read the path of the PositionFile (For example if I had the file in C:\data\PositionsExample.RML" PUT SRC="c:/data/PositionsExample.RML " dest="/PositionFile.RML" Note: Use only forward slashes (/) as Java needs it as such. Go ahead and save this file. I have also made the following changes and saved the file # set root directory CHDIR local="./Results/%TIMESTAMP%" To put the results in C:\RMClient\Results\2002.04.01_11.50.14\John\ Step 9a. To Run the Batch file immediately, within the c:\RMClient Directory type "java -jar RMClient.jar file=Uploading_Positions.cfg", i.e. C:\RMClient>java -jar RMClient.jar file=Uploading_Positions.cfg Note 1: You have to be in the directory where the client piece is located otherwise it will not run. Note 2: In the rare occasion that memory is not sufficient if you are uploading large files then increase memory to 128 by typing: "java -jar -Xms 128 RMClient.jar file=Uploading_Positions.cfg" Step 9b. To Run the Batch file with a schedule, create a file in notepad with the following text in it (note: your filename may be different, mine is Position_Upload.txt): java -jar RMClient.jar file= Uploading_Positions.cfg save this within c:\RMClient with a *.bat extension, e.g., c:\RMClient\upload.bat Then use Windows scheduler to run this file.
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Scheduling RMClient Batch Runs

Objective - Schedule a RMClient remote batch run from your Workstation. To schedule, we must use the Microsoft Windows Scheduler. From Step7-9 we can place the DOS command in a .bat file and schedule the .bat file to run 5 days a week before the market opens (for example). .bat File Contents 1. 2. Line 1 - change the directory to the RMClient directory (or where the extracted sequence is located) Line 3 - java command to run RMClient referencing the sequence. Note: use full paths where indicated as the Microsoft Task Scheduler does not make any assumptions about the location of programs; you must specify using full paths names. Example of RMClient_Test.bat cd c:\RMClient c:\jdk1.3.1_01\bin\java.exe -jar c:\RMClient\RMClient.jar file=extracted_script_name.txt
On Windows 2000, the scheduler is started from Start->Programs->Accessories->System Tools>Scheduled Tasks
On NT, users with IE5 will find the Scheduled Tasks Icon located in "My Computer" from the desktop. The Scheduled Task Wizard will guide you to choose the .bat file, select a time of day, and frequency.
Browse to the .bat file
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Select a frequency to run the RMClient position upload & reports:
Choose the time 0f day:
The user enters their domain and login details along with the password authentication. This is the login details the user types into their workstation every morning or to unlock the display.
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The user Exits the Scheduler Wizard
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Index
3 3D Data Charts......................................... 343 A Acrobat Reader........................................... 47 Adding Call Schedules ............................... 118 Administration .... 36, 63, 78, 84, 87, 88, 91, 92, 372, 375 Administration Specific Site Map ................... 59 administrator messages ............................... 80 Apache Tomcat WebServer .......................... 51 Applying Fill Down Entries .......................... 188 B Base Credit Exposure .........................277, 278 Base Credit Expoure .................................. 279 Base Currency .......................................... 176 batch............................. 78, 87, 369, 375, 390 Batch Job......................84, 354, 356, 368, 372 batch scheduling..................................84, 372 batch sequence ...................................84, 372 Benchmarks ................................ 36, 131, 271 Bond equivalent........................................ 206 Bond Equivalents ......................... 11, 203, 204 Bond Report Summary Example.................. 231 Browser ..................................................... 46 Browser Configuration Settings..................... 49 Browsing RM3 Web Application Host ......................... 55 Browsing.................................................... 55 Business Day Conventions ......................... 328 C Callable Bonds ...................................... 22, 23 Chart........... 343, 345, 347, 349, 350, 352, 353 Client PC.................................................... 46 Commodity Rates Shift .............................. 221 CommodityDelta ....................................... 224 CommodityGamma ................................... 224 Contact Information .................................... 60 Contributional Duration.......................212, 214 Control ......................................... 36, 99, 356 correlation report ....................... 293, 294, 300 Correlations .................................. 9, 299, 326 Counterparties.......................................... 287 Counterparty ............................................ 286 Create New Position .................................. 109 Create New Users ....................................... 65 Create Position Content ............................. 110 Creating Historical Stress Scenario ........................ 184 Horizon Group ....................................... 336 Position Group ....................................... 126 Report .................................................. 310 User Defined Stress Scenario................... 182 Creating .................................................. 126 Creating .................................................. 182 Creating .................................................. 184 Creating .................................................. 310 Creating .................................................. 336 Creating User Groups .................................. 69 Credit Default Swaps ............................. 22, 23 credit exposure..9, 11, 280, 281, 282, 283, 284, 285 Credit Manager......................................... 286 CreditManager................................... 287, 289 CreditMetrics............................................ 291 CurrencyDelta .......................................... 224 CurrencyGamma....................................... 224 Custom Bucket List ................................... 113 D Data ............................ 87, 162, 363, 365, 375 DataMetrics..............................36, 87, 88, 375 Decay Factor ..................................... 326, 329 Defining .................................................. 309 Delete .......................................195, 314, 333 Delete Multiple ......................................... 333 Delete Multiple Reports ............................. 314 Delete Multiple Stress Tests ....................... 195 Deleting Saved Report ........................................ 317 Single Position ....................................... 120 Deleting .................................................. 120 Deleting .................................................. 317 Deleting Multiple Horizon Groups ................ 338 Deleting Multiple Position Groups ................ 128 Deleting Multiple Positions .................. 124, 128 Deleting Multiple Saved Reports ................. 319 Deleting Stress Tests ................................ 194 Delta Equivalents......................... 11, 218, 220 demos ....................................................... 14 Disable logins............................................. 83 Duplicate Multiple Positions ........................ 123 Duplicate Multiple Stress Tests ................... 193 Duplicating Stress Tests .......................................... 192 Duplicating .............................................. 192 Duration .................................................. 203 Duration Statistic. 207, 208, 211, 212, 214, 215, 231 E Edit Select Position ....................................... 111 Edit......................................................... 111 Edit......................................................... 191 Edit Stress Test ........................................ 191 Edit User Profile.......................................... 66 Editing Custom Bucket List ................................ 113 Editing .................................................... 113 Editing .................................................... 118 Editing Detail Lists .................................... 112 Effective Duration .............................. 207, 208 Email notification ............................... 100, 174 Equity Rates Shift ..................................... 221 EquityDelta .............................................. 224 EquityGamma .......................................... 224 Excel....................................................... 322 Expected Shortfall....................................... 11 export excel/delimited report ..................... 322 export pdf report ...................................... 320 export xml report results ........................... 323 Exporting........................... 103, 106, 147, 151 Exporting Graphics.................................... 353 Exporting Positions ............................ 103, 106
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F file system ............................................... 158 Fill Down Entries ....................................... 186 FutureValue ............................................. 201 FX Rates Shift........................................... 221 G Generalized Greeks ...................... 26, 224, 228 Generalized PVBP........................... 23, 26, 221 Generate Multiple Reports .......................... 313 Getting Started................................. 3, 4, 6, 7 Graph......................... 343, 345, 350, 352, 353 Greek Sensitivities .................................... 224 groups................................................76, 304 H HeatMap Charts ........................................ 350 Hierarchy .................................... 74, 345, 347 Histogram ................................................ 352 Historical Equity Vol .................................... 26 Historical Stress Scenario Creating................................................ 184 Historical Stress Scenario........................... 184 Home Page ...................94, 160, 170, 177, 229 Horizon Group Creating................................................ 336 Horizon Group .......................................... 336 Horizons ................................... 231, 328, 334 I implied volatility ......................................... 23 Import........................................ 36, 138, 158 Import market data................................... 365 import processed index.............................. 145 Importing duplicate positions...................... 100 Importing Positions ............................... 6, 100 Importing Stress Scenarios ........................ 179 Incremental Tracking Error........................... 11 Incremental VaR ......................................... 11 Index Builder131, 132, 133, 136, 137, 143, 144, 152, 155 Index Components .................................... 135 Index of Application Functions ...................... 58 Index Query ............................................. 147 Index Query Structure ............................... 148 Instructions.............................................. 171 Interest Rates Shift ................................... 221 Intermediate Results report.................302, 303 Issuer Specific Risk ..................................... 26 J JP Morgan Bond Index ......... 138, 152, 153, 155 L Line chart ................................................ 349 Lines per page .......................................... 173 Loading Positions ..........................................4 Log ......................................................... 369 Log off multiple users .................................. 82 Logging into RiskManager3........................... 56 M Macaulay Duration ...................................... 11 Mandatory Convertible Bonds ....................... 23 Mandatory Convertibles ............................... 26 Map........................................................... 58 Marginal VaR .............................................. 11 Market Data78, 87, 88, 158, 161, 165, 349, 356, 375 Market Data Graphs .................................. 165 market data report.............................304, 305 Market Data Returns .....................................9 Market Data Scatter Chart ......................... 166
Market Data Table Report ................... 164, 340 Market Data Viewer .................................. 161 Market Driven Instrument.......................9, 286 market group .............................304, 305, 340 MarketServer ............................................. 88 Max Credit Exposure .......................... 283, 284 MDI ...................................... 9, 286, 287, 289 message..................................... 80, 100, 175 Message List .............................................. 62 Microsoft Internet Explorer Browser .............. 46 multi-blocked report ................................. 273 Multiple Risk Settings ................................ 275 Multiple Statistics ..................................... 230 Multiple Statistics Report .............231, 233, 273 Multi-Risk Setting report..................... 273, 274 N Navigating ............................................... 325 Netting .................................................... 287 Notification .......................... 36, 100, 175, 369 P PC Client Browser Settings........................... 48 Pie chart .................................................. 345 Plug-ins ..................................................... 47 Portfolio Correlations................................. 299 Portfolio Volatility ..................................... 300 position commands ..................................... 96 Position Group Creating ............................................... 126 Position Group.......................................... 125 Position Group.......................................... 126 Position Group Maintenance ....................... 125 position groups.......76, 139, 141, 152, 153, 155 Position View................................... 96, 97, 99 Positions..... 94, 95, 97, 99, 100, 103, 106, 112, 124, 125, 126, 158, 356, 359 Preferences............. 78, 88, 171, 172, 173, 174 Preferences Password Tab.......................... 172 Present Value ........................................11, 22 process index ..................... 136, 144, 145, 151 PVBP ..................................................11, 206 PVBP Delta................................................. 11 PVBP Statistic........................................... 231 R Read Me First ............................................... 3 Relative Contributional Duration ................. 215 Release 3.5......................................................... 27 Release ..................................................... 27 Release Notes 3.7 ..................................15, 20 Removing Stress Entries ............................ 190 Rename duplicates.................................... 100 Report Creating ............................................... 310 Report.... 7, 9, 36, 196, 229, 233, 273, 275, 309 Report..................................................... 310 Report..................................................... 311 Report..................................................... 313 Report..................................................... 315 Report..................................................... 316 Report..................................................... 317 Report..................................................... 318 Report..................................................... 319 Report..................................................... 368 report position selection ............................ 271 Report Reference Guide ................................. 9 Report Setup Function List ......................... 311
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Index
Report Statistics ....................................... 196 Reporting Currency ................................... 176 Return Horizon ......................................... 326 Risk Attribution Report ..................................9 Risk Contribution ........................................ 11 Risk Services .............................................. 51 Risk Setting Ideas ..................................... 332 Risk Settings 273, 274, 275, 324, 325, 330, 333 Risk Settings Explained.............................. 324 RiskManager Home Page.............................. 57 RiskManager product summary..........40, 41, 42 RiskManager Resources .................................1 RiskMetrics................................................. 60 RiskMetrics Contact Information ................... 60 RiskSetting .............................................. 142 RM 3.6 Release Features.............................. 26 RM3 Administrator Home Page ..................... 64 RM3 Administrator Session Timeout .............. 90 RM3 Application Starting .................................................. 54 RM3 Application .......................................... 54 RM3 Architecture Diagram ........................... 39 RM3 Client PC Configuration ......................... 46 RM3 Key Features ................................. 44, 45 RM3 Web Application Host Browsing................................................. 55 RM3 Web Application Host............................ 55 RM3.4 new features ....................................... 33 RMClient377, 378, 379, 380, 381, 382, 386, 387, 388, 389, 390 RMClient Architecture Diagram ................... 377 Running Reports ....................................... 309 S Sampling Frequencies................................ 328 Saved report Deleting ................................................ 317 Viewing................................................. 316 Saved report ............................................ 315 Saved report ............................................ 316 Saved report ............................................ 317 Saving RML on file system ......................... 106 Scalar Vector Graphics............................... 168 scatter chart............................................. 347 Security ..................................................... 63 Select Position Edit ...................................................... 111 Select Position .......................................... 111 Selecting Market Data ............................... 160 Selecting Positions ...................................... 94 Selecting Preferences ................................ 170 Selecting Reports ...................................... 229 Selecting Stress Testing............................. 177 Selection.................................................. 103 Sending messages to multiple users .............. 72 Services..................................................... 51 session information ..................................... 79 simulation return report......................302, 303 Single Position Deleting ................................................ 120 Single Position .......................................... 120 Single Position .......................................... 121 Single Position Detail Report....................... 121 Single Statistic ......................................... 342
Software Version ...................................78, 91 Spread Rates Shift .................................... 221 SpreadDelta ............................................. 224 SpreadGamma ......................................... 224 Square-root-of-time ........................... 326, 329 Standard Deviation ..................................... 11 Starting RM3 Application ....................................... 54 Starting ..................................................... 54 Statistic - Delta Equivalents ....................... 220 Statistics Reference Guide ........................... 11 Stress Scenario ........................................ 182 Stress Test PV ............................................ 11 Stress Test PV Delta.................................... 11 Stress Tests ............................................. 192 SVG Graphics ........................................... 168 SVG Viewer Help ...................................... 169 Swaps ..................................................22, 23 swaptions ....................................... 22, 23, 35 System Information ...............................78, 91 system usage ............................................. 79 T Tag .................................................. 114, 117 Tag Dimension ......................................... 114 Tag Example ............................................ 115 Tag Maintenance Controller........................ 117 Tags ............................................ 36, 92, 138 Tomcat Application Server ........................... 51 U Underlying Duration .................................. 211 Underlying Present Value 11, 197, 209, 211, 214 User Defined Stress Scenario Creating ............................................... 182 User Defined Stress Scenario ..................... 182 User Group Maintenance.............................. 68 User Groups............................................... 71 User Profile ....................................... 100, 175 users logged on .......................................... 79 V Value-at-Risk ............................................. 11 VaR........................................................... 11 VaR Histogram .................................. 306, 307 Vega Risk .............................................22, 23 Version of Software..................................... 91 Viewing saved report.......................................... 316 Viewing ................................................... 316 Viewing Data............................................ 162 Viewing Multiple Saved Reports .................. 318 Viewing Saved Reports .............................. 315 Volatilities..................................... 22, 23, 326 Volatility Rates Shift.................................. 221 volatility report.................................. 293, 294 W Working With ....................................................... 95 With Positions.......................................... 95 Working .................................................... 95 X xml results............................................... 323 Z Zero-Mean Assumptions ............................ 329
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RiskMetrics RiskManager 3.

7 RMClient Batch Application

RiskManager Help Resources

RM 3.7 Release User Features RM 3.7.1 Analytic Features

RiskMetrics RiskManager 3.7 RMClient Batch Application

2003 Market Data Volatility Spreadsheet Example Dec 4, 2002

Research Contributors (New York)

Getting Started with RiskManager

RiskMetrics RiskManager 3.7 RMClient Batch Application

Loading Positions - Getting Started

EXXON MOBIL CORP

Semiconductors Services Software & Services

INTEL CORP AOL TIME WARNER INC

Getting Started with RiskManager

Why would you ever override the equity price?

RiskMetrics RiskManager 3.7 RMClient Batch Application

Import the portfolio file - Getting Started

Getting Started with RiskManager

Creating a Report - Getting Started

RiskMetrics RiskManager 3.7 RMClient Batch Application

Report Reference Guide

Tabul ar Repor t Type

Customi zable Table Report

Note: must have show legacy reports turned on in Preferences/Report Setup

Risk Attrib ution

Getting Started with RiskManager

Credi t Expo sure

Report to export the RiskMetrics Credit Manager application.

Credit Exposure report to be discontinued (legacy report).

Note: must have show legacy reports turned on in Preferences/Report Setup

Detail ed & Interm ediate Result s

Simulatio n Portfolio Returns

Marke t Data Repor ts

RiskMetrics RiskManager 3.7 RMClient Batch Application

Statistics Reference Guide

Getting Started with RiskManager

RiskMetrics RiskManager 3.7 RMClient Batch Application

stress Test PV Net PV after application of a predefined Stress Scenario.

Generalize d Greek Sensitivitie s

Sensi tivity Type

Getting Started with RiskManager

RiskMetrics RiskManager 3.7 RMClient Batch Application

Getting Started Demo Map

View Managers and Filter Groups

RiskMetrics RiskManager 3.7 RMClient Batch Application

Encryption and Compression

New Administrative Features in RiskManager 3.7 AuthDB Account Changes

Rules for access

RiskMetrics RiskManager 3.7 RMClient Batch Application

Change Password OnNext Login

RiskMetrics RiskManager 3.7 RMClient Batch Application

RiskManager 3.7.1 Analytical Features

Constant Maturity Swap (CMS) Caps, Floors, and Collars

RiskMetrics RiskManager 3.7 RMClient Batch Application

RiskManager 3.7.2 Analytics Features

RiskManager 3.7.3 Analytics Features

RiskMetrics RiskManager 3.7 RMClient Batch Application

Convertible Bonds - Floating Coupons

RiskMetrics RiskManager 3.7 RMClient Batch Application

RM 3.6 Release Features

RiskServer ASP 1. Performance statistics for each query type

RM 3.5 Release Notes

RiskMetrics RiskManager 3.7 RMClient Batch Application