Overview of Framework
The framework underlying RiskWin evolved from our efforts to model the world of Investment Finance subject to
specific goals .
The view on finance that we arrived at divides the world of finance into two
main groups:
- Static: This group contains those components where the data is not expected to change
once it is defined. [ For example, the specifications for a particular
derivative security do not usually change after it has been created and sold. ]
- Dynamic: This group contains those components where the data is expected to be
continually changing. They can be further classified into two types of changes:
- Internal: Where the user has control over how the data changes;
- External: Where the user has no control over how the data changes.
The basic components in our view on finance can be allocated to these groups
as follows:
These basic components can be described briefly as:
- Security: The security component is the main component of the framework and it is used for defining
securities in terms of their static information;
- Position: The position component enables the user to create a position in a security and then make
allowable changes to the position's dynamic information - such as net amount
held and average cost;
- Portfolio: The portfolio component enables the user to collect and hold positions together to be
analyzed in aggregate;
- World Data: The world data component enables external data to be specified within the
system and for the dynamic nature of such data to be captured - such as spot FX
exchange rates;
- World Variable: The world variable component enables the aggregation of World Data components into a composite
representation of a finance construct - such as a Sovereign Yield Curve. For
example, all the yields that make up such a yield curve can each come in from
external data sources via World Data components and then be aggregated to represent
the whole yield curve. The World Variable component facilitates such a
representation;
- World State: The world state component facilitates the aggregation of World Variable components to
represent that collection of dynamic components which represent "the state of the
world" at a given point in time. For example, a World State could be composed of: a
USD Sovereign Yield curve; a CAD Sovereign Yield Curve; and a USD/CAD Exchange
Rate.
The diagram below describes how these basic components are related to each
other:
The interaction between the World State and the Portfolio occurs during the Valuation process. For example, in order to value a portfolio it is necessary to
specify the World State under which the value is requested.