Due to the mixed-model approach some financial instruments are valued at fair value (e.g. derivatives) or at amortized cost (e.g. loans & receivables). When entering in a hedge relation, the hedged items change the valuation method from amortized cost to fair value. This mixed-model approach opens a space of optimization regarding future (balance sheet) volumes and P&L changes.
One goal can be to minimize the volatility of the P&L. While this is trivial when the potential hedged items and hedging instruments are known, it is quite complex when there are many (e.g. 1000) potential contracts for a hedge relation. The optimization can only be performed by using special mathematical optimization techniques like gradient, steepest descent, Newton, stochastic search and others.
riskpro(tm) offers a very sophisticated and flexible methodology for hedge optimization. "What we offer is probably the most advanced tool in the market since we are combining riskpro(tm) strong feature of dynamic contract forecasting with several mathematical optimization techniques", says Andreas Jaek, Vice President Business Development.
Besides that it covers also interest rate risk, default risk, fair value, impairment and IFRS specific book entries.