Centrum Wiskunde & Informatica (CWI) and the University of Amsterdam (UvA) have developed new calculation methods for the estimation of financial risks. The institutions collaborated with ING, EY and VORtech in the project ‘Advanced Estimation of Credit Valuation Adjustment’, which will be concluded autumn 2017.
In the project, led by professor Kees Oosterlee, CWI and UvA developed new calculation methods that can make the estimations as accurate as possible in order to assess the extent of the necessary buffers needed to mitigate financial risks. Since the financial crisis of 2008 regulations for banks and pension funds have been sharpened. Financial institutions are obliged to retain sufficient buffers and to map the risks of their financial products very thoroughly, to be able to cover these financial risks. To carry this out, accuracy is essential. Inadequate buffers will either lead to irresponsible risks or will slow down the economy.
The researchers worked on state-of-the-art calculation techniques that align with financial questions organizations are dealing with. New mathematical techniques can cope with more complex calculations and will for example estimate the effect of a bankruptcy on the complete portfolio of financial products instead of the effect on individual products. This will help banks to meet the required standards and to be able to grant credits at the same time.
The users committee consisted of ING, EY and VORtech. The private partners are very pleased with the results of the project. Drona Kandhai, head of the Dutch branch of the Front-Office Quantitative Analytics team of ING and active academic partner (from the Computational Science Lab of UvA) of the project comments: “the cooperation between the researchers and ING went very well and is of great added value to our bank. The jointly developed techniques are very relevant and will be integrated in our value- and risk-systems on short notice. After four years of intensive, high-level research we can conclude this is a very successful example of valorization.” The partners used a so called Bitbucket platform to share de developed software. This is a platform that allows software engingeers to work together on open-source projects. CWI and ING look forward to working together again in the near future in order to develop further improved models and techniques.
Qian Feng and Kees de Graaf, two PhD’s that worked on the project will defend their thesis on short notice. A paper with the scientific results has already been published in the Journal of Computational Finance last September.
The project received financial support from the STW Open Technology Programme.
Publication:
http://oai.cwi.nl/oai/asset/24772/24772D.pdf
Picture fltr: Dr.ir. Jok Tang (VORtech), Dr. Dirk Scevenels (ING bank), Drs. Sandy Kalisingh (STW), Drs. Kees de Graaf (PhD student, UvA), Dr. Drona Kandhai (ING Bank, UvA), Prof.dr.ir. Kees Oosterlee (CWI, TUD), ir. Qian Feng (PhD student, CWI), Dr. Diederik Fokkema (EY).
