Varitron provides Hungarian financial institutions with a unique solution so far. It is a VAR, Value at Risk based risk management system, that applies industry standard methods adapted to specialities of the Hungarian capital and money market.

Varitrons answers the following questions:

• How much is the VAR, that is the biggest possible loss the firm can face in a given period of time on a specific portfolio (position)?
  
• Does the firm meet capital adequacy requirements?
• Do the traders and their managers remain within the limits?
• What are the deals required to lower the risk under the targeted limits?
• What is the contribution of an asset or asset group to the total risk?

Risk management as a business

Several firms choose to ban proprietary trading as executives think that they do not have the right systems in place to check how much risk their traders take.

With the help of Varitron financial institutions can measure their risks, so the newly allowed and limited proprietary trading activities mean direct profits for
them.

     

On the other hand, Varitron is also a must for active risk management departments: it makes daily routine tasks faster and more reliable, freeing up time of risk managers to concentrate on more complex tasks.

Mark-to-market positions

It is useful to have a management information system that shows the value of all the positions on current market or theoretical prices. In case of FX forward deals the revaluation of positions is only possible using theoretical prices, as the deals are not standardised. With daily marking-to market firms can avoid to have traders to roll over their cumulating losses.

Functions

• Position tracking
• Measuring the risk of a position in any currency, with several methods at the same time
• Yield curve estimation
• Limit setting and checking
• Setting up and measuring the risk of ad-hoc portfolios
• Regulatory and in-house report generation
• Graphical presentation
• Statistics and hypothesis testing

Methods

• Parametric VAR
• Historic VAR
• Simple VAR
• Monte Carlo VAR
• BIS "Standard method"
• Traditional risk ratios (duration, convexity)
• Stress testing
• Backtesting

Measuring risk

There are several methods to measure the risk of a portfolio. VAR, that is value at risk based methods aggregate the risk into one single number.

    

From the reports of Varitron executives know how much risk their firm takes - without the detailed analysis of the underlying positions. If the 1 day, 99% VAR is HUF 15 million, it means that in 99% of the cases the firm will not lose more than HUF 15 million in one day.

Analysis

Every model that measures risk has assumptions about the movements of the prices of financial products (Parametric VAR, for example, assumes that the daily returns are normally distributed). These assumptions can be analysed graphically and analytically as well.