Approximity risk management tool
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The Approximity Risk Management Tool (ARMT) is an extensible software tool to model the risk associated with a portfolio consisting of stocks and bonds. ARMT combines estimation and simulation methods - the generation of realistic scenarios for portfolios (and trading strategies) with a high fraction of e.g. government bonds is possible. Advanced Risk and Performance Management methods (VaR, ES, RORAC, fair capital allocation) can be applied by the generated scenarios. ARMT can be used as stand-alone or as extension plug-in for other systems like SAP.
ARMT mainly consists of two parts:
ARMT allows the comfortable simulation of future scenarios for combined bonds and stocks markets. Comprehensive financial market models (e.g. a Cox-Ingersoll-Ross model with two stochastic factors for the bonds/interest rates) guarantee a realistic insight to market risks and allow applications like stress-testing or risk management. Latest statistical methods as e.g. Kalman-filtering approaches are used to calibrate our models to the historical time series. High-end random number generators guarantee a proper use of the models for simulation purposes.
Historical paths (Sept. 1972 - Feb. 2003) followed by simulated sample paths (360 months) for yields of different maturities. Click on the images for a higher-resolution image.
ARMT features a unique combination of modern risk management techniques. Ongoing from the comfortable input device for portfolios of coupon bonds and stocks, a huge set of future scenarios of the development of the portfolio can be computed. Now, the modern machinery of risk management can be applied. ARMT's standard version computes the Expected Shortfall risk measure (and also Value-at-Risk (VaR)) and allows to calculate the fair risk contribution of any share, which gives valuable insights to the allocation of risk inside the considered portfolio. Further, the performance measure RORAC (= return on risk adjusted capital) is computed. ARMT offers the opportuntiy to compute the RORAC-optimal portfolio under a given budget.