Abstract

Valuing, hedging and securitizing counterparty credit risk involves analyzing large portfolios of netting sets over time horizons spanning decades. Theory dictates that the simulation measure should be coherent, i.e. arbitrage free. It should also be used consistently both to simulate and to value all instruments. This talk describes the Mathematics and the software architecture of a risk system that accomplishes this task while delivering a very rich set of valuation information and 3-dimensional risk metrics in real time to the end user, including portfolio loss distributions, equilibrium tranche spreads and sensitivities. The network bottleneck is bypassed by using capable boards with acceleration. The memory bottleneck is avoided at the algorithmic level by adapting the mathematical framework to revolve around a handful of compute-bound algorithms.