Certainly companies in industries such as oil, mining, chemicals and banking have a history of developing sophisticated risk awareness programs. Yet, some of the most spectacular risk failings have occurred within such organisations.
Commodity price exposure is a key risk in e.g. oil, mining and chemicals. Citation from a Canadian oil executive:
“In our industry the price of oil is not something we are able to control. We must have well-developed plans to adjust our business and operational plans and, if needed, we must be prepared to implement those plans. Price impacts can be material, so you have to think this through ahead of time.”
There needs to be a culture, a process and a sophisticated technical solution for enabling successful risk management.
RiskButler.com is an advanced high quality technical solution that also provides support for the risk culture and the risk process, both for the short term and the long term.
RiskButler.com provides a fast track to get up and running on the technical solution, and as the gain of investment surpasses the cost of investment in weeks the decision to get started is easy.
RiskButler.com supports all kinds of products, OTC and exchange-traded, has built-in data cleaning filters, and supports data of different frequencies including daily, hourly and minute-by-minute.
A portfolio may for example include commodities, foreign exchange, cash flows, equities (shares), bonds, mortgage backed obligations, swaps, and forwards, futures (energy, metals etc.) & options.
If your business has special products such as tailored hedging products for your clients, these can be valued and incorporated too in RiskButler.com.
Throughout the life of a derivative contract, its value may bear little or no resemblance to its initial cost. Under those circumstances, traditional accounting practices that require instruments to be booked and carried at historical cost in financial statements become essentially meaningless.
RiskButler.com not only measures the values of the derivatives but also provides risk and opportunity numbers for the derivatives (as well as other products in the system).
Opportunity - the upside
Uncertainty is the situation of unknown future.
Opportunity is a state of uncertainty where some possible outcomes can have (significant) positive influences on your enterprise value.
Risk is a state of uncertainty where some possible outcomes can have (severe) negative influences on your enterprise value.
RiskButler.com measures and provides information on both opportunity, risk and valuation of individual financial products. This ensures unified and consistent results that are better.
Ease of use and decision-support
RiskButler.com provides ease of use, understanding and decision-support through relevant selection of information (processed data) and visualisations (diagrams) in customised opportunity & risk reports, reports that are relevant to you. Reports are on-line 24/7 and dynamic in the sense of being continuously updated to new information.
It does market risk (commodity, equity, foreign exchange, interest rate, volatility etc.), counterparty credit risk and liquidity risk.
The normal setup is to use RiskButler.com as a Software as a Service (SaaS) i.e. a 24/7 cloud service through an internet/intranet browser. RiskButler.com can be implemented locally (within the enterprise) if wanted.
Communication is fully encrypted and portfolios are kept 100% private on your preferred devices (computer, mobile, tablet/iPad) and databases.
The technical platform is built using the newest web technologies, cloud computing and map-reduce type storage suitable for Big Data analysis. Integration to other systems is made easy by using standard internet technologies for information transfer.
Customization and specific configuration has been designed into RiskButler.com from the start so this is supported perfectly.
The method is complicated - just use it
To quantify the opportunity and the risk, RiskButler.com simulates millions of likely future outcomes (events) and pairs those outcomes with the calculated magnitudes of those events thereby estimating the enterprise (portfolio) value impact.
The Monte Carlo method, a statistical method, is used by RiskButler.com to simulate so-called multi-period & multi-variate Geometric Brownian Motion stochastic processes. A similar methodology is today used by some of the largest global financial banking institutions in controlling the institutions’ own internal financial portfolios.
Subjective opinions - own beliefs or third party estimates (polls) - of the future direction of for example oil prices can be incorporated in the simulations.
Big Data cluster analysis is an integrated part of RiskButler.com too. This is currently used to group very large data sets which is the situation if the portfolios include hundreds or thousands of different products.
Forecasting time horizon
The best risk time horizon to use depends on the products in the portfolio, the size of the portfolio and the trading activity (frequency). Typical time horizons are:
- Trading business: 24 hours
- Business: 30 days (monthly reporting)
Research & development
Development is guided by your business needs and we collaborate directly on R&D with currently, two universities in Copenhagen and a major trading bank to refine the forecasting methods.
RiskButler.com is patent pending.