Description of Basic Setup

The Basic database example, distributed with the product, gives a possible layout for a trading operation from a trader's perspective. This example demonstrates how RiskWin can be used to facilitate the standard valuation requirements of a trader.

Organizational Layout:

The organization layout was achieved by using the RiskWin functions under the Organization menu.

Before the components for the layout could be entered into the database, the necessary components first had to be planned and the precedence for their creation had to be identified.

The Credit Ratings required for the Basic setup were created using the Credit function under the Organization menu.

The following Credit Ratings and ranks were created:

The next components created were the Counterparties that were required. They were created using the Counterparties function under the Organization menu.

The following Counterparties were created:

The Categories required were created using the Categories function under the Organization menu.

The following Categories were created:

The Holiday Calendars required were created using the Holiday Calendars function under the Organization menu.

The following Holiday Calendars were created for 1999:

The Basic example was created to represent how one trader would use RiskWin in a simple manner to perform standard valuation calculations. For this purpose, only one Desk was required and it was created using the Desks function under the Organization menu.

The Desk created was called:

There were two Actual Portfolios and one Synthetic Portfolio required by the trader. These portfolios were created using the Create Portfolio function under the Portfolios menu. [See also Creating Synthetic Portfolios.]

The following Actual Portfolios were created and assigned to Desk TRADER_A:

The following Synthetic Portfolio was created and assigned to Desk TRADER_A:

Securities Defined:

The first securities that must be defined in RiskWin are the primary Currencies that will be used. After these Currencies have been created, other securities which are required can be created.

The securities required were created using the Create Security function under the Securities menu. [See also Creating Securities.]

The following Currencies were created:

The following Forwards were created:

The following Standard Options were created:

The following Single Barrier Option was created:

World Variables Defined:

Each security that is defined requires one or more World Variables in order for the security to be correctly valued. All the World Variables required must first be defined in RiskWin before any valuation procedures can be carried out.

The World Variables required were created using the Create World Variable function under the Variables menu.

For each Currency defined, it is necessary to have a corresponding Sovereign Yield Curve. The following Sovereign Yield Curves were created:

The following Exchange Rate Structure was created to specify the spot exchange rates between currencies:

The following Volatility Skew Structures were created to enable valuation of options on the currencies:

[NOTE: There is no Volatility Skew Structure required for USD because this currency is the base price currency for all the volatility data in the specified Volatility Skew Structures. Therefore, a USD volatility in another price currency is automatically calculated from the existing volatility skew structures.]

The following Price Correlation Structure was created to enable automatic calculation of cross-currency volatilities:

World States Defined:

World States are required before valuation can be carried out in the RiskWin framework.

The World State required was created using the World States function under the Variables menu. All the previously created World Variables were added to this World State.

This one World State created in the Basic example was called:

Positions Defined:

Actual Positions were created and assigned to the Actual Portfolios.

These Actual Positions were created as Trades using the Trade Security function under the Portfolios menu.

The following Actual Positions were created and assigned to the A_CURCY Portfolio:

The following Actual Positions were created and assigned to the A_CURCYOPT Portfolio:

Some What-If Positions were also created for both of these Actual Portfolios.

Valuation:

Valuation details were specified for all of the Portfolios in order to conduct simple Sensitivity Analysis calculations.