Announcing the Predictive Market Scenarios experimental service

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“What happens if…?” It’s one of the fundamental questions of mathematical finance. A client sits across from their financial advisor, having just completed their allocation across funds and asset classes, and wonders “what happens if the sector I’ve over-weighted appreciably falls in value?”. A portfolio manager at a distressed debt hedge fund eagerly awaiting the results from the ratings agency ponders, “what happens if my largest position gets downgraded?”. The CRO of a global bank reviewing a balance sheet stays up at night dreading, “what happens to our leverage if the spreads widen on all of our outstanding swaps?”.

We’re expanding our investment management offerings today to offer the capability to address these questions with the Predictive Market Scenario service. This service provides users with the ability to generate a financial market scenario – what some refer to as a stress test – by generating an alternate state of the market conditioned on a given shock. Given an input condition (e.g. oil goes down 5%, interest rates increase 1%, credit spreads widen 100 basis points), the service determines how other market variables might react to such a change. This is done by observing the history of co-movements, or covariances between factors, to make a stochastic / probabilistic projection of how they may behave going forward given the input condition. This allows a user to leverage the industry-leading approach through a simple API call, instead of having to settle on using a less accurate, ‘back-of-the-envelope’ approach.

What you can do with the Predictive Market Scenarios service:

• Supply a risk factor (a stock, a spread, a macroeconomic variable) and its desired movement to receive a response containing the projected movements of all other risk factors.
• Use the response as an input to the Simulated Instrument Analytics service to compute an estimate of how an investment portfolio might react under the set of circumstances.
• Generate stress tests as a service for use in risk management platforms, back-testing applications, or regulatory reporting.

Try it today

Predictive Market Scenarios is available today on Bluemix. You can find it in the Experimental section, in the Finance subsection. Predictive Market Scenarios is an experimental service, so it might change over the coming months. For more information, see Getting Started with Predictive Market Scenarios.



via Bluemix Blog

May 31, 2017 at 04:12AM