RiskQuest is a consultancy firm specialized in risk models for the financial sector.
In a complex world there is a clear need for managing risk. Models can be a key success factor. They help create a better understanding of the underlying factors that drive complex relationships. Models bring transparency, lower costs and ultimately help in taking the right decisions.
While models form the core of our services, we perceive them as a means rather than an end. Statistics are no substitute for judgment: decision makers need to understand what a model can and cannot do; models should be aligned with the client’s strategy and the right level of oversight needs to be in place.
RiskQuest advises on …
Fields of interest
Our consultants have acquired experience in the following fields:
We advise institutions on how to align their risk organization with their business strategy and risk appetite. This includes defining 1st, 2nd and 3rd line responsibilities, setting up limit structures, calculating economic capital and putting policies and controls in place.
We help organizations minimize model risk. This could include implementing of a model governance framework, applying conservatism where necessary, rationalizing the model inventory and/or establishing model development standards.
When we build credit rating, PD or LGD models we first clarify the model requirements together with our client. We then start collecting and cleansing the data. Using SAS, MatLab or R, we perform statistical analysis and combine this with expert judgment, to develop credit models that contain just the right risk drivers, not too many and not too few.
We have developed and validated market risk models for the buy side (spread risk, interest rate risk, equity risk, currency risk and property risk) as well as for the sell side (Value-at-Risk, greeks, counterparty credit risk, CVA, stress testing, FRTB)
We have ample experience in designing scenario models (under both the risk-neutral and the real-world measure) for ALM risk in the balance sheets of banks, insurers and pension funds. In addition, we have developed models for underlying portfolios such as savings, mortgage prepayments and other embedded options.
The calculation of life time expected loss and the consistent implementation of definitions, such as triggers between stages, use of a default/impairment definitions, point-in-time PDs, etc. require extensive modelling experience. We have a lot of experience in this area.
Sometimes pricing financial instruments is no more complicated than using the right market data and appropriate pricing functions. The valuation of more complex products, however, may require monte carlo simulation to obtain risk neutral valuations. We can advise on both.
Solvency & Basel regualtion
We help our clients meet regulatory requirements, including Solvency II, Basel and EMIR regulations . We can advise on interpretation of regulations and translating those requirements to policies, controls and models.
Diversification is an important tool to manage risk. To determine diversification effects across different risk types, risks need to be aggregated. This involves choices around marginal loss distributions, correlations, copula functions and technical restrictions. Once aggregated risks can be attributed to business units.
We have validated many models and have ample experience in highlighting the key areas of model performance: is the model fit for use? What are the main areas of model risk? How can the modeller improve the model? Such validation can provide assurance to both management and regulators.
We advise insurance clients and pension funds on actuarial activities such as longevity modelling, interest rate risk, hedging strategies, inflation risk, pricing (premium down), non-life insurance, valuation of embedded options and derivatives and regulatory compliance (nFTK).
We build scorecards that predict the probability that an applicant will behave in a particular way, helping our clients make automated decisions, increase efficiency and lower organizational costs. Most commonly these scorecards are used for lending decisions, but other applications are possible too, e.g profitability (RAROC), lapse risk, etc.
Do you manage a mutual fund for private individuals? In that case, your financial information leaflet must comply with the new European PRIIPs by 2020. Did you know that you have to calculate new yield forecasts instead of past yields?
The new European regulation for Packaged Retail and Insurance-based Investment Products (PRIIPs) will replace the “Key Investor Information Document (EBI)” for the new “Essential Information Document (EID)” by 2020. The PRIIPs regulation ensures improved standardization and transparency of investor information for investment funds, insurance products with investment element, third pillar pension products, structured products and derivatives. The AFM has extended open-end funds until the end of 2019, but closed-end funds have already placed the new PRIIPs EID on their website at the start of 2018. RiskQuest has already carried out the new PRIIPs calculations for risk score and yield forecasts for several of these closed-end fund managers.
To optimally benefit from our skills, we actively involve senior consultants at any project. However, to get a job done effectively we do not only involve architects but also brick layers.