BUY-SIDE TECHNOLOGY AWARDS: Best buy-side risk management initiative over the last 12 months: StatPro

Marco Marchioro and Dario Cintioli, StatPro

This category reflects the move across the buy side toward developing more clearly defined and stringent risk management practices in the wake of the credit crisis and the ensuing global recession. Buy-side firms are on the lookout for easy-to-implement technologies offering support for a wide range of instruments including esoteric fixed-income and over-the-counter (OTC) derivatives, and are also looking to increase the transparency around the processes and methodologies used by the underlying risk management platforms. By now, buy-side firms are familiar with the various market and credit risks facing them, and by and large, most of their risk needs are well catered for by the mature and competitive third-party vendor landscape. But one challenge, market liquidity risk—or the risk of losing money in the event of liquidating one or more positions in a portfolio—continues to be the thorn in the side of many asset managers, especially those active in thinly traded instruments/markets.

StatPro’s risk division, led by Dario Cintioli and Marco Marchioro, recently launched version 5.70 of its StatPro Risk Management (SRM) platform, in use at over 40 buy-side firms. SRM has been designed specifically to replicate the way bid, ask and volume data is created for bonds and OTC derivatives, for which traditionally there is a dearth of reliable information, given the fact that these instruments are typically traded over the counter. StatPro has created three such scenarios underpinning the new risk tool: normal conditions, stressed conditions and highly stressed conditions. In each scenario, StatPro inserts the bid and ask of the derivatives that market-makers use to hedge their positions—interest-rate swaps (IRSs) and credit default swaps (CDSs) for “normal” bonds, inflation IRS and CDS for inflation-linked bonds, and IRS, CDS, stock prices and stock volumes for equity-linked bonds, and so on. This is a novel approach to a vexing problem, and is rewarded in the year’s awards. —VBA

My vote goes to StatPro, as the improvements in modeling risk for illiquid instruments and derivatives significantly improves buy-side firms’ capabilities in this area.

“Our work on StatPro Risk Management 5.70, delivering a new model for measuring market liquidity risk, is the latest in a series of innovations from our risk research and development (R&D) team led by Dario Cintioli. StatPro continuously challenges itself to develop the most advanced, integrated software available to the buy side. StatPro’s strategy remains to provide a coherent product platform that delivers both better value and analysis to our clients. Our R&D team is currently working on the integration of the best of our risk software into StatPro Revolution, our new online portfolio analysis service, offering performance, attribution, risk and reporting for portfolio managers.”
—Justin Wheatley, CEO, StatPro

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