VaRworks®
Value at Risk and VaRdelta®

Description
VaRworks is a set of Microsoft® Excel add-in functions that calculates Monte Carlo and analytic value at risk (VaR), cash flow maps, VaRdelta, and Component VaR for a portfolio of cash and derivative instruments. This product supports RiskMetrics® and Euro specifications and reads MakeVC™, RiskMetrics, and custom datasets. Typical users are corporations, investment funds, financial institutions, insurance companies, commodities firms, and utilities.

VaRworks is written completely in C and C++ and provides extremely fast calculations. It includes Excel add-in functions (XLL files), customizable Excel templates, a sample portfolio, a daily volatility-correlation dataset, and documentation. When installed, VaRworks adds functions to Excel that are used like the built-in worksheet functions, so you can customize the VaRworks templates or create new ones.

VaRworks is also available as the VaRlib™ C/C++ library for Unix and Windows programmers who want to incorporate VaRworks functions into custom and third-party C, C++, Visual Basic, and SQL database applications.

Features
Cash Flow Mapping Cash flow mapping is automatic. VaRworks accepts trade terms from a portfolio management system or database and shreds each instrument into component cash flows, then allocates those cash flows into currency, commodity, asset class, and maturity buckets.

VaR VaR is the minimum expected loss on a position given a time horizon, confidence level (probability), and home currency. For example, suppose your daily VaR is US$10MM with 95% probability, then over the next 24-hour period there is a 5% chance your loss will exceed US$10MM. Use VaR to adhere to regulatory guidelines, comply with internal and external risk management directives, evaluate traders' and investors' return/risk performance, and set traders' risk limits.

VaRdelta and Component VaR FEA created VaRdelta to extend VaR measurement into VaR improvement. VaRdelta rapidly evaluates candidate trades for their VaR-improving qualities, without requiring firm-wide VaR recalculations. You can easily determine portfolio "hot spots," assign real-time, VaR-based trading limits, and compare the cost of putting on a hedge with its reduction in VaR. Component VaR is a method of decomposing total portfolio VaR into additive parts. VaRdelta U.S. patent 5,819,237.

Monte Carlo Simulation VaRworks supports full Monte Carlo simulation for portfolios containing non-linear instruments. It calculates VaR, VaR standard error, mark-to-market, expected value (mean) and standard deviation of the distribution of portfolio returns, and the entire Monte Carlo distribution prepared for easy charting.

Extensive Instrument Coverage VaRworks includes a large set of cash and derivative instruments: bonds (forwards, futures, options, futures options, floating-rate, coupon, zero-coupon, odd-coupon, callable, amortizing, when-issued, and Brady bonds), interest rates (Eurocurrency futures and futures options, FRAs, swaps, swaptions, caps, floors, repos, money markets, deposits, barrier caps and floors, and currency swaps and swaptions), currencies and commodities (spot, forward, futures, options, index swaps, differential swaps, and exotic options such as swing contracts, average-price, average-strike, spread, crack, best-of, and forward-start options), and equities (cash, futures, options, and average-price options). Instrument coverage is continually expanded by incorporating FEA's large library of financial functions. For instruments not directly supported, you can provide your own cash flow maps.

MakeVC Compatibility VaRworks supports MakeVC and custom volatility-correlation datasets.

Coverage
VaRworks functions perform the following calculations:

  • Map a portfolio into cash flows
  • Calculate a portfolio's diversified Monte Carlo VaR
  • Calculate a portfolio's diversified analytic VaR
  • Calculate a portfolio's undiversified analytic VaR array
  • Calculate a portfolio's VaRdelta array
  • Calculate a portfolio's Component VaR array
  • Calculate a candidate trade's incremental VaR
  • Return volatility and correlation dataset information
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