David Rowe, executive vice president of risk at SunGard, said, "Credient MC 2 offers, for the first time, a commercially viable means of supplying traders with sophisticated marginal credit exposure and marginal credit cost estimates in a matter of seconds. By linking the marginal cost of risk directly back to day-to-day trading decisions, it becomes the enabling technology for incentive-based risk management."
The methodology is incorporated in the credit risk analytics offered by Credient, SunGard’s comprehensive service for global credit risk management and control, delivered via an application service provider (ASP) framework. The Credient service provides a total, real-time credit risk solution for global exposure aggregation and limits management, credit risk analytics, collateral management and Web-based communications. Credient offers two other methods for calculating portfolio credit exposure: full Monte Carlo simulation and grid Monte Carlo simulation. All approaches use commensurate valuation and risk factor models so that they can be readily compared.
SunGard’s proprietary Credient MC 2 methodology is able to produce a fully detailed profile of credit exposure in real-time because of the analytics used, achieving near Monte Carlo results. Credient MC 2 uses closed-form valuation functions to enhance speed, while a proprietary patent-awarded methodology, comprised of highly optimized algebra and parallel processing, results in very high accuracy.
Nick Lea, head of Credient analytics, explained, " A Monte Carlo run for a portfolio larger than 1,000 deals can easily take longer than an hour because values are calculated at every time horizon, under multiple market scenarios. Credient MC 2 also calculates credit exposure at all the salient points in the life of a portfolio, but is able to do so in real-time because of the proprietary algorithms used. Unlike other alternative approaches to Monte Carlo simulation, no compression techniques are used, thus preserving the effects of portfolio diversification and opposing sensitivities to market variables."
Lea spearheads financial engineering for Credient at SunGard’s Oxford research and development center. The Oxford team of expert credit risk developers and project managers focuses on the development, quality assurance and professional services of Credient.