Numerix Economic Scenario Generator – Bridging Risk Neutral and Real World Environments

New York - 9 December 2014

Regulation & Real-time Risk Requirements Drive Need for Consistent ESG Solution 

Numerix announces today Numerix ESG, a sophisticated stochastic simulation framework for producing risk neutral and real world economic scenarios. Numerix’s ESG helps insurance companies, banks and buy-side institutions generate robust risk neutral and real world scenarios using the most comprehensive model library in the industry, via a simple and easy-to-use web-based interface.

Regulations require more frequent reporting, and more granular calculations which can be difficult to comply with in a timely way. Firms are also challenged by lack of a consistent model framework capable of producing scenarios for instruments consisting of multiple underlyings. Such inconsistent assumptions prevent firms from looking at risk holistically across the enterprise.

By combining real world and risk neutral models Numerix ESG is designed to satisfy the criteria prescribed by regulators. Numerix ESG provides insurers with the robust scenarios they need to power downstream applications such as economic and regulatory capital calculations, liability pricing, hedge projections, and statutory reserve calculations, while satisfying regulators and stakeholders within the company.

Consistency of Models across the Enterprise

“The foundation of risk analysis is based on scenarios. With regulators and internal risk teams now requiring real-time results and enterprise-level risk assessment, today’s financial institutions have found themselves without the consistent scenarios and analytical underpinning for business-critical activities – such as stress testing, limit setting, projecting capital in to the future and observing how potential exposures will behave over time,” said Satyam Kancharla, Senior Vice President and Chief Strategy Officer of Numerix. “With Numerix ESG model dynamics are consistent for both risk neutral and real world scenarios, providing consistency in a nested stochastic framework. This enables clients to export our scenarios to other systems and different departments for use across the enterprise.”

Unlocking the Key to Calibration: Unique Hybrid Model Framework

Where risk neutral scenarios are used for derivatives pricing, real world scenarios are based on various analyst, management and economic expectations. In either case, ensuring correlation and mean reversion is factored into scenarios is critical, as scenarios can produce explosive or negative rates especially when projecting out many decades into the future. With financial institutions operating under different economic assumptions and how markets might evolve, Numerix ESG provides complete flexibility and transparency to view and customize all model and calibration settings, giving users full control of scenario generation.

With Numerix’s industry-leading hybrid framework calibrations are optimized for rapid performance and real world scenarios reflect realistic market dynamics and usable scenarios that are justifiable.

“In today’s market, there is significant oversight when it comes to risk management – spanning internal risk teams, the front office, senior management, compliance and regulators. As such, our clients require a scenario framework that is both defensible, and reasonable when looked at from all of these areas,” said Steven R. O’Hanlon, Chief Executive Officer & President of Numerix. “The Numerix ESG is easy to use, with a simple workflow and fast results helping to calculate capital and reserves, efficiently allocate capital across the firm and enhance profitability. The ability to distribute calculations to an internal grid or cloud platform is also incredibly powerful – enabling scalable high performance computing for large scenario sets.”

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