Market Risk may be defined as the possibility of loss to a bank caused by changes in the market variables. Value at Risk (VaR) is a single number which is easy to understand and represents the maximum a portfolio can lose in a specified holding period at a specified confidence level. Primary Dealers have been asked by the regulator to provide for their capital adequacy based on Value at Risk(VaR) of their portfolio. Increasingly Commercial Banks have initiated action in implementing Value at Risk models to adequately cover themselves against market risk.
Credence Analytics India Private Limited has been successful in providing a Value at Risk solution (C-VaR) to the banks which tightly integrates with their existing treasury systems. Credence Analytics has recently added a large public sector bank as the 11th client for the Credence Value at Risk solution. Some of the other institutions which use Credence Value at Risk solution include large public sector banks, private banks, co-operative banks, primary dealers, and a large insurance company.
S.P. Prabhu, Head of Research, IDBI Capital Market Services says, â VaR is moving towards being an integral integral part of risk management in organisations. A good VaR model should be intuitive to use, dynamic in nature and robust. Robustness of a model can be tested by backtesting the model and the users should be able to conduct backtesting by themselves. Also the emphasis should be on methodologies used. Looking into the future there is lot of need for further academic research in the subjectâ.
The Credence Value at Risk system comes with some additional benefits. Credence Analytics Marketing Manager M.R.Rajesh says, â Our VaR solution not only provides the client with a VaR Calculator, but it also provides a combination of an analytical tools kit for âwhat ifâ scenario analysis, provides market information through www.intreasury.com and also integrates with the bank's treasury software. Integration of the VaR system with the bank's existing treasury database helps automatic updation of the portfolio for which VaR is being computed thereby eliminating duplication of deal entries by dealers and hence avoiding operational risk of wrong entries. The system also provides in-built risk reports for stop loss guidance and decision support for the mid-office and dealersâ.