Coping with the Tsunami of Compute Load

With new regulations after the 2007/2008 global financial crisis banks are have to perform increasingly demanding calculations on a daily basis. Managing counterparty credit risk has become the prime focus of the banks' risk departments. With the recent Fundamental Review of the Trading Book (FRTB), new regulations to calculate market risk and CVA capital have been released by the Basel Committee which are more demanding than before. Further, the new margining rules for bilateral trades require to post initial margin for increasing numbers of trades - to be computed with the sensitivity-based ISDA SIMM methodology. And an increasing number valuation adjustments (XVAs) need to be considered when valuing trades, each requiring complex Monte-Carlo simulations to calculate. Banks struggle to cope with the computational complexity of these tasks.

This paper reviews the complexities in credit exposure calculations, FRTB SBA, FRTB IMA, FRTB SA-CVA, SIMM, and XVA calculations and gives a set of practical recommendations on how to optimise a software implementation.