Asset-Liability & Market Risk Management

In the Asset-Liability & Market Risk engagement, clients partner with QRM consultants and Subject Matter Experts who have years of experience modeling, measuring, and managing risk. Our consultants provide complete guidance through all risk practice reengineering initiatives a client undertakes on the way to best practice; for example, modeling complex optionality, integrating strategies into stochastic forecasts, creating custom reports to provide managers actionable business intelligence, and developing processes for creating effective hedging strategies. Our clients build a customized risk practice that leverages best practices to consistently increase shareholder value and risk-adjusted returns.

Precisely Model the Optionality in the Balance Sheet and Your Exposure to Interest Rate Risk

Our Asset-Liability Management & Market Risk engagement enables clients to model even the most complex assets, liabilities, and off-balance-sheet instruments. QRM consultants work with clients to accurately price instruments’ embedded optionality, whether it is a cap or floor, an option to enter a swap, or a prepayment option. QRM consultants have experience with all academic pricing models, including multi-factor forward rate models such as HJM and BGM. In addition, our clients ensure that all hedge accounting standards, including FAS133, 157, 159 and IAS 39, are satisfied when modeling the balance sheet.

Clients build behavioral models to capture all instrument prepayment, re-pricing, and decay characteristics. QRM’s Behavioral Modeling team assists in building parameterized prepayment and core deposit models that truly reflect observed customer behavior. QRM also partners with clients to integrate their current prepayment models into the modeling process. Popular third party models are often incorporated into the client’s risk process as well.

Accurately and Thoroughly Measure the Risk of Your Balance Sheet under Any Economic Scenario

QRM clients obtain a greater understanding of their risk profiles because of their ability to generate dynamic forecasts using trading-quality models. Our clients have moved beyond gap analysis to measure sensitivity in greater detail. They create both deterministic and stochastically generated forecasts that introduce currency and economic scenarios. In addition, the introduction of more advanced measures such as key rate analyses allows managers to account for changes in the shape of the yield curve. Clients create and integrate their growth, reinvestment, and re-pricing rules into a comprehensive earnings and value forecast to understand how multiple rate scenarios will affect their current business plans. QRM also works with clients to build multi-currency value-at-risk processes that provide the market risk and earnings-at-risk assessments needed to comprehensively understand the impact of changes in correlated interest and currency rates.

Integrating market valuation into their earnings forecasts, our clients are able to perform future market valuations and total return analysis. The recent financial pronouncements regarding Fair Value are moving GAAP accounting close to a true Profit & Loss- (P&L) based income statement reflective of current market conditions. As a result of this convergence, organizations desiring to establish an effective earnings forecasting process must adopt a total return framework. QRM clients establish forecasting processes capable of marking each asset or liability to market in future periods and recording the profit or loss to income. Our clients understand how the P&L will change through time based upon multiple forecasted environments, and also how the risk-reward profile may change.

Manage Risk with Effective Macro and Micro Hedge Processes

Once accurate and efficient processes for measuring the balance sheet’s risk have been built, clients are able to quickly view and react to changing market conditions. QRM consultants work with clients to build effective hedging strategies that optimize returns while remaining within the clients’ risk tolerances. Returns can be optimized at the balance sheet level, the sub portfolio level, or even down to the transaction level. The optimized returns often consider all accounting assumptions, including hedge effectiveness. This ensures that a client’s economic hedges will also be effective for GAAP accounting.

Build Effective Management Reporting to Provide the Business Intelligence Needed to Manage Risk QRM clients create reports that effectively and concisely deliver the business intelligence management needs to make profitable financial decisions. Our consultants help clients leverage the reporting capabilities of their analytical frameworks to deliver customized reports to management. Industry-standard OLAP and Microsoft Reporting Services technologies are commonly utilized and data model builders allow clients to write their own data models and create individual report parts based on completely customizable risk measures. As our clients maintain results at the transaction level, their reports can easily roll up and aggregate information over institution-specific hierarchies, like those for customer, business line, region, or product dimensions.