Moody’s Analytics adds market risk analytics to its PFaroe Portfolio Management (PM) platform.
PFaroe PM now offers historical and Monte Carlo risk analytics alongside its multi-asset class performance attribution capabilities.
PFaroe PM is a cloud-based solution which allows users to customise their performance attribution and risk analyses while providing an interactive tool to probe and analyse results.
The historical and Monte-Carlo analytics use a new simulation engine to generate market scenarios.
Historical simulation applies past returns to market factors such as equity prices, interest and FX rates, market-implied inflation rates, among others.
By contrast, Monte-Carlo simulation uses the correlation and volatility of those same market factor returns as the basis for the generation of thousands or even tens of thousands of scenarios.
Given this scale, Monte-Carlo simulation allows for extreme tail events to be modeled. It also allows more recent events to be given more weight, capturing changes in market volatility quicker.
In PFaroe PM, users can calculate risk measures such as standard deviation, value at risk (VaR), or expected shortfall using both historical and Monte-Carlo simulation methods.
The company said that as market participants look for ways to navigate through the current rising interest rate and inflation environment, the enhancement to the PFaroe PM platform provides portfolio managers with a full view of their risk/return profile.
Users are better equipped to avoid unwanted risks, to quickly respond to these risks them for their clients, and to turn investment risks into investment opportunities.
“Understanding portfolio performance has never been more important,” said Matthew Watt, director of product management, buy-side solutions at Moody’s Analytics.
He added, “Increasingly, investors are seeking greater insight into the underlying factors impacting their portfolio managers’ investment performance. Offering risk capabilities using those same factors informs investors on the volatility underpinning each manager’s strategies.”
The updated version of the PFaroe PM platform will be available from 1 August this year.
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