Risk Management
The Risk Management component of TheBooks provides tools to quantify the risk a given subset of accounts have to price movements. TheBooks provides three different risk management tools:
Value at Risk
Value at Risk is the industry-standard way of quantifying, within a desired confidence interval, the maximum amount of money a portfolio is likely to loose in the next day given it's positions. TheBooks uses the Historic Simulation method of calculating Value at Risk.
Stop Loss Analysis
Stop Loss Analysis reviews a portfolio's positions as well as the protective stops that are in (or plan to be in) the market and reports the worst amount of money as well as a percent loss that will occur if the exit stop is hit.
Scenario Analysis
Scenario Analysis provides the ability to analyze an arbitrary portfolio’s reaction to price movements. Select a market condition, such as “Find me the 10 most recent times the S&P moved 2 percent in one day” and TheBooks will analyze the portfolio's reaction based on what happened during those events.
Value at Risk
TheBooks uses the Historic Simulation method of calculating Value at Risk. Historic simulation takes a portfolio of assets at a given point in time and revalues it using actual historic prices of the instruments (or proxies) going back some pre-determined time period (typically 100 days). The portfolio revaluations produce a distribution of profit and losses which can then be used to determine the Value at Risk with the required confidence (typically 95%).
TheBooks provides Sector VAR and Portfolio VAR for the last n days for the selected portfolio and run parameters.
Stop Loss Analysis
There are three reports that detail stop loss:
Open GTC Orders
This report displays the open GTC orders you have with brokers and includes a summary of the loss to be expected in absolute as well as a percentage basis for each open order.
Stop List Summary
This report shows current positions, open trade equity, stop loss and stop loss percent by market grouped by sector for a selected group of accounts.
Stop Loss Detail
This report shows current positions, open trade equity, stop loss and stop loss percent by market grouped by sector by account for a selected group of accounts.
Scenario Analysis
TheBooks provides the ability to analyze an arbitrary portfolio’s reaction to price movements. Select a market condition, such as “Find me the most recent 10 times the S&P moved 2 percent in one day” and TheBooks will display those events.
Select one of those events and TheBooks will evaluate the selected portfolio’s reaction to the event in terms of realized and unrealized gains by market and sector. Select them all, and TheBooks will evaluate the reaction to all the events and provide average, median, minimum, and maximum returns, again by market and sector. Exit stops, if specified, will be executed with slippage.
All results are displayed in tables and are charted. Charts and data can be copied and pasted into other applications for further analysis or presentation.
Risk Explorer
The Risk Explorer draws from all the risk management capabilities of TheBooks and organizes them into a single, interactive user interface. It allows the risk manager to easily perform what-if analysis on a portfolio and see the results both graphically and in tables.
Positions can be added, changed, and removed from existing portfolios to examine the effects of changes before the trades are executed. Positions can be imported from other systems allowing the Risk Explorer to be used to analyze risk in portfolios maintained outside of TheBooks.