FinAnalytica Introduces ‘What-If Tail Risk and Return Analysis’ in New Cognity Release

London and New York - 4 October 2011

- Version 4.0 offers enhanced ‘Tempered’ Stable Distributions modelling and increased performance through new scenario caching.

- Users have access to expanded upside tail returns analytics and enhanced tail risk hedging models.

FinAnalytica, the leading provider of multi-asset class, predictive performance analytics solutions to investment managers, announced today the release of version 4.0 of its risk management and portfolio construction platform, Cognity. Based on four fat-tailed modelling patents received over the past 18 months, Cognity 4.0 adds innovation across the entire platform framework, including new modules, enhanced modelling and statistics, expanded reporting, and performance.

Cognity 4.0 introduces powerful new what-if scenario analysis that offers precise tail loss and tail return comparisons when adding and removing positions or adjusting allocations. Through a new what-if interface and scenario engine, Cognity users can quickly create what-if portfolios and analyze the impact of potential changes simultaneously across multiple scenarios. The new engine component caches previously run scenarios, dramatically reducing the what-if “time to results” down to seconds for a typical portfolio. Cognity runs the complete suite of fat-tailed risk measurement and risk budgeting analysis. Intuitive comparative reports pinpoint the impact of the what-if changes to both expected tail loss and expected tail return.

“Having the ability to assess the real world impact of investment changes pre-trade enables portfolio managers to confirm expected outcomes and garner new insights into unexpected consequences, both positive and negative,” said Boryana Racheva-Iotova, FinAnalytica President. “With a clear view of changes in the tails, our clients gain added insurance from Cognity what-if analysis by avoiding potentially damaging trades that sometimes are not indicated by simple Gaussian what-ifs.”

This release extends Cognity’s patented Stable Distributions for measuring tail risk over both short-term and long-term horizons with a single consistent model. The “Tempered” Stable Distribution model offers improvement by implicitly accounting for lower frequency returns being less fat-tailed.

In the latest version, the Cognity reporting framework has been extended to include new right tail analytics including Marginal Contribution to Expected Tail Return, offering new upside focus. In addition, Factor Contribution to Risk reporting now includes a new non-linear Factor Contribution to Expected Tail Loss statistics which more accurately measure the tail risk hedge impact of derivatives. With full transparency into factors and positions that act as tail risk contributors versus tail risk diversifiers, investment managers realize added value with portfolios that are more resilient to extreme events while maintaining the investment objective.

David Merrill, FinAnalytica CEO, commented: “Given the uncertainty in today’s markets, we are excited about the timing of this release. Through advances offered by Cognity 4.0, both in our modelling framework and analytics technology, our customers can leverage Cognity more extensively across their workflows and decision making processes. We expect they will find clear value particularly as turbulent times are expected to continue.”

Cognity 4.0 also includes improvements to usability, expanded asset class coverage and upgraded, integrated interfaces to both Bloomberg and SIX Telekurs.

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