In FINCADs recently released survey, the company reported that 28% of sell-side and 30% of buy-side respondents said accurate risk assessment was their biggest challenge.
In response to this being the major challenge, the respondents in both of these segments reported adjusting their risk management strategy. Their adjustments included greater analysis and awareness of model risk and carrying out stress testing and scenario analysis. According to the survey the most important type of risk analysis was Monte Carlo VaR for both sell- and buy-side at 31% and 40%, respectively.
While respondents generally favor VaR, Sungard has seen both positive and negative results with the risk analysis tool.
“This survey corroborates what we have heard from our customersrisk management is a big priority, but also a big challenge in getting the numbers right,” says Bob Park, president and CEO of FINCAD. “Accurate risk assessment is such a critical component to their overall risk management strategy. Knowing your solution provides the right numbers is vital to an organization’s ability to manage their risk. It has been a big driver in the creation of F3 and why we’ve seen so much interest in our technology.”
Another challenging area for both the sell side and buy side was independent pricing and valuation. Of buy-side respondents, 28% said this was their biggest challenge. One in five sell-side respondents reported that independent pricing and regulatory compliance were also big challenges that they faced. With all of the regulatory changes taking place, it was no surprise that both sell-side (63%) and buy-side (58%) respondents felt that there would be a moderate or major impact on their business.
The majority of sell-side respondents (69%) reported using third-party analytics exclusively or in conjunction with their in-house systems. When looking for a third-party analytics platform, transparency into the models and ease of use and implement topped the list for the sell side, followed closely by adaptability to market conditions. For the buy side, transparency and ease of use and implementation were the most important features in an OTC valuation solution.
(CM)