STARS ALM includes optimization with presentation-quality output
Savvysoft, the award-winning derivatives analytics provider, has just released a new Asset/Liability Management system. Called STARS ALM, it allows institutions to optimize their debt and investment mix, and measure their risk across scenarios.
STARS ALM handles investments in every asset class, including both domestic and international debt and equity, as well as fixed and floating debt issuance, and swaps. Users are able to add as many asset classes as they need, and enter expected returns, volatilities and correlations for all asset classes.
Based on this information, STARS ALM generates thousands of multi-period scenarios of cash flows and valuations (for example scenarios of cash flows 1 year out, 2 years out, 3 years out, for as long a horizon as is needed).
These scenarios are derived taking into account the rebalancing of the assets back to the desired asst mix, as well as dealing with user-defined policies for bond reissuance upon maturity and a call event. It can also deal with collateral posting on swaps.
The system is then able to derive an efficient frontier based on the scenario data, which represents the highest return for each given level of risk, or alternatively the lowest risk for each given rate of return. Given user preferences, the efficient frontier can then be reduced to a single point which represents the optimal mix of assets and liabilities.
STARS ALM is also capable of measuring the risk and return of any arbitrary investment portfolio, debt portfolio and set of swaps. This allows the user to easily see the amount of improvement in risk and return that can be achieved by following the system’s recommendations.
The measures of risk and return can be flexibly defined by the user, and STARS ALM offers many ways to view the risk and return statistics. For example, a graph of the efficient frontier is available, as well as a table showing the holdings for each point on the frontier. A frequency distribution of cash flows across scenarios is also available, as well as cash flow over time, and bar charts of the current and proposed asset mixes.
Key ratios are also calculated across the scenarios, including:
Days Cash On Hand
Maximum Annual Debt Service Coverage
Operating Cashflow Margin
Debt to Cashflow
These can all be displayed in a table showing their expected value as well as percentile values.
All graphs and tables are presentation quality and may be directly inserted in Microsoft Office documents (Word, Excel and PowerPoint).
STARS ALM is available immediately.