Risk Simulation

Under Risk Management in the Risk Simulation, you can set up a risk simulation report to analyse how adding different rollover, decrease, and increase scenarios of your loan portfolio will affect the outstanding loan and interest expenses. 

You set it up the same way as a report in the system, but there is a new tab, "Risk Simulation," where you can add different risk scenarios to the report. 

The different scenarios you set up will automatically create new transactions to increase/decrease the outstanding loan and change the interest expenses. The risk simulation will reduce or remove the need to add new simulated deals in a separate portfolio. 

Risk Simulation TAB

Rolling Behaviour 

This section will automatically roll over the chosen percentage of the maturing loans during the selected measuring period of the report. 

To create the simulated deal, we look at the original deal and make a simulated deal with the same conditions if nothing else is specified. 

All simulated deals will have an "R" in the Global ID. When the deal is rolled over multiple times, the first will have R1, the second R2 and so on.

Mandatory fields: Roll percentage. All other fields are optional.

• Deal Type - Available deal types are Bonds, Commercial papers, Interest Rate Swaps, Leasing Loans and Loans
  • The amount that the simulation will roll over in is the:
    • Nominal amount for Bonds and Commercial papers.
    • Residual amount for Leasing loans.
    • Repayment amount at the Deal end for other deal types.
• Interest Type - If the deal type is IRS, you can create different scenarios per leg.
• Currency - Chose currency if it is only a particular currency you would like to roll over.
• End Date - If not set, the simulated deal will be rolled over until the Measuring Period ends. If a date is set, no rollovers will be made after the set date. If it's a short-term instrument like commercial paper, it can be rolled over multiple times until the end date. 
• Maturity Period - If you would like to roll over all your loans with a specific period, e.g. a 1-year loan, regardless of how long the original maturity period is. 
• Limit amount Percentage Amortisation - If an amortisation plan is connected to the original loan, the last amortisation will be rolled over to the new loan if the amount is X% (default 10%) or more of the original amount. No simulated deals will be created if the amount is below X to avoid rolling over small amounts on loans with scheduled amortisation.
• Limit amount Amortisation - Same as Limit amount Percentage but a fixed amount instead
• Roll Percentage - Select X% how much of the maturing loans you want to roll over (default is 100%).
• Payment Period - Enter a payment period if all the simulated deals should have a specific payment period that is different from the original deal.
• Interest - Enter an Interest percentage if the simulated deals should have a specific interest rate different from the original deal. If interest is not entered the system will calculate an expected interest rate from market data curves.
• Spread - Enter a percentage if the simulated deals should have a specific spread that is different from the original deal. 
• Interest type - If the simulated deals should have a specific interest type (fixed or floating) different from the original deal. 
• Fixing index - If the simulated deals should have a specific fixing index different from the original deal. 
• Fixing period- If the simulated deals should have a specific fixing period different from the original deal. 

Deal Behaviour

In the second section, it is possible to pinpoint a specific deal and create a particular scenario. Note that the deal specified in this section will be excluded from the general conditions above in the Rolling Behaviour section. In other words, the deal will not be simulated twice.

• Deal ID - Pick a specific deal that should be simulated in a different way than set in the Rolling behaviour section
• Exclude deal - Check the checkbox if a specific deal should not be simulated at all and should only be in the report.
• Deal Type - It is not necessary to fill in, but it is useful if you have added different deal types to one deal.
• Interest Type - Only to be used for Interest rate swaps
• End date - If not set, the simulated deal will be rolled over until the Measuring Period ends. If a date is set, no rollovers will be made after the set date.
• Scheduled amortisation - If the selected deal has an amortisation, you can choose to keep the scheduled amortisation or to simulate the deal without a scheduled amortisation.

Capital change

In the third section, a Capital increase or decrease can be entered. This will create new transactions in the simulation report to decrease/increase the loan amount and other affected columns. Add from and to dates for the start and maturity of the new loan/deposit transactions; this will create the simulated transaction. 

Mandatory fields are:

• From date
• To date
• Currency
• Amount
• Payment period
• Interest 
• Spread (if applicable) 
• Interest type: If floating interest, a base interest needs to be entered for the first period. The expected interest is then calculated for the following transactions.
  Interest type fixed: Enter the fixed interest rate you want to use for the simulation

The simulated deal will have an "N" In the Global ID.

Selection TAB

The Selection TAB determines which deals are included in the risk simulation. For instance, you can select the Deal type or Deal ID range:

Report Result

Click Run to view the result of the risk simulation: