Summing up VAR

There are a number of approaches to building the IT systems architecture required for historical simulation value-at-risk implementations. What are the pros and cons associated with these architectures? And why does the risk-aggregator approach overcome some of the issues with many of the more traditional architectures? By Christopher John Brickhill

If the historical simulation methodology is selected as the methodology for the determination of an institution’s value-at-risk, or HSVAR, then there are a number of architectures for market risk systems. These are:

Transaction data from the databases used by front-end treasury systems is copied to a risk database and the risk calculations performed on the copy (See diagram 1: traditional architecture) The transaction data remains where it is, in the databases of the treasury front-end and