IBM Algo One V5.1 delivers an integrated approach to financial risk management

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1 IBM ed States Software Announcement , dated December 8, 2015 IBM Algo One V5.1 delivers an integrated approach to financial risk management Table of contents 1 Overview 17 Publications 3 Key prerequisites 17 Technical information 3 Planned availability date 21 Ordering information 3 Description 33 Terms and conditions 16 Program number 39 Prices At a glance Solutions provided in IBM (R) Algo One (R) V5.1 Sell side solutions Algo (R) Integrated Market and Credit Risk Algo Balance Sheet Risk Management Algo Capital Management Buy side solutions Algo Portfolio Construction and Risk Management - Installed Edition Algo Economic Capital, ERM & Solvency II - Enterprise Edition Algo Investment Design for Wealth Management - Enterprise Edition Overview IBM Algo One provides firms with an expandable infrastructure for building an integrated, enterprise-wide approach to financial risk management. The Algo One structure consists of three component layers that can be configured into multiple solutions that meet the specific requirements of individual firms according to their industry and their required level of financial risk management sophistication. Algo One - an integrated enterprise risk solution built in three component layers All Algo One solutions require an Algo One Foundation and an Algo One base component, plus any optional add-ons to deliver additional functionality. Algo One Foundation (layer 1) Algo One Foundation includes core functionality related to risk data management, scenario generation, scenario engines, common risk models, and risk calculation. New in Version 5.1 Enhancements to risk data management and core risk engines Enhancements to pricing models, and updates to third-party risk model libraries such as mortgage prepayment IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 1

2 Enhancements to scenario generation, including for conditional scenarios and commodity models Algo One base components (layer 2) Each Algo One solution includes at least one Algo One base component. Sell side solutions Algo Integrated Market and Credit Risk is an enterprise solution designed to help banks measure and manage market and credit risk across all asset classes, product types, and industry sectors. This solution supports Basel III internal models and selected standardized approaches. Algo One Market Risk Base Algo One Counterparty Credit Risk Base New in Version 5.1 New market risk add-ons to help firms meet regulatory requirements related to the Fundamental Review of the Trading Book New credit risk add-ons to help firms meet regulatory requirements related to the Standardized Approach for measuring Counterparty Credit Risk and further refine their derivatives pricing by including additional valuation adjustments - collectively known as xvas Algo Balance Sheet Risk Management enables the measurement of the interest rate, liquidity, structural currency risk, and consumer behavior of core banking activities. Algo One Liquidity Risk Base Algo One ALM Base New in Version Enhancements to Algo One Dynamic Balance Sheet Analysis Add-on with automatic rebalancing of the balance sheet for planning purposes. Algo Capital Management provides financial institutions with the tools, technology, and support to help address the challenges of the Basel Accords. Algo One Regulatory Capital Base Algo One Economic Capital Base New in Version Enhancements to Algo One Credit Economic Capital Base with a new pooling feature and Cognos (R) reporting templates. Buy side solutions Algo Portfolio Construction and Risk Management - Installed Edition is designed to help asset owners and managers optimize portfolio performance, achieve better risk oversight, and address increased client and regulatory demands. Algo One Buy Side Base New in Version Enhancements to risk analysis dashboards, and counterparty credit risk functionality with a new Algo One Buy Side Credit Risk Add-on. Algo Economic Capital, ERM & Solvency II - Enterprise Edition helps insurers manage balance-sheet risk exposures for economic capital, solvency capital, and risk management purposes. Supporting both internal and standard model approaches, this edition is designed to deliver timely and valuable information to risk managers, actuaries, portfolio managers, and senior management to enable tactical and strategic business decision making. Algo One Buy Side Base IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 2

3 New in Version Enhancements to counterparty credit risk functionality, and capital workflow capabilities. Algo Investment Design for Wealth Management - Enterprise Edition helps wealth managers achieve regulatory compliance through advanced multi-period optimization to construct and manage personalized client portfolios. Algo One Buy Side Base New in Version Enhancements to risk analysis dashboards. Algo One add-on components (layer 3) Algo One Foundation add-ons are available to add core functionality to all Algo One solutions, and solution-specific add-ons add functionality to the base components of each individual solution. New in Version 5.1 Algo One Market Risk Incremental Default Risk Charge Algo One Market Risk Standardized Approach Algo One Advanced Simulation Algo One Market Risk Limits Algo One Market Risk Real-Time Algo One Market Risk Fundamental Review of the Trading Book Algo One Counterparty Credit Risk Standardized Approach Algo One Counterparty Credit Risk Advanced xva Algo One Buy Side Credit Risk Algo One Foundation Risk Application Explorer and Connect Key prerequisites Red Hat Enterprise Linux TM, IBM AIX (R), and Microsoft TM Windows TM platforms are supported. For specific product details, refer to the Technical information section. Planned availability date December 8, 2015: Electronic delivery December 15, 2015: Media delivery Description Algo One Foundation Algo One Foundation is required for all Algo One solutions. The Foundation includes core functionality related to risk data management, scenario generation, scenario engines, common risk models, and risk calculation. Algo One Foundation add-ons are available to all Algo One solutions, enhancing the capabilities and functionality of the Foundation as required to meet specific needs. New in Version 5.1 Enhancements to risk data management, such as enabling historical tracking of inputs (for example, input of last month) and creating sandboxes IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 3

4 Enhancements to core risk engines, infrastructure components, and pricing models Updates to third-party risk model libraries such as mortgage prepayment Enhancements to scenario generation, including for conditional scenarios and commodity models Enhancements to defining and monitoring batch jobs Support for newer versions of core elements such as JDK libraries, databases, and operating systems Algo One Risk & Financial Engineering Workbench Add-on: A desktop application enabling clients to configure the pricing and risk analytics and to understand the sources of financial risk. Algo One Risk & Financial Engineering Workbench Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Risk Application Explorer Add-on: A browser-based, graphical, and interactive interface providing users the ability to measure, monitor, allocate, and manage portfolio risk. The drill-through, slice and dice, and what-if capabilities support risk-focused portfolio construction. Algo One Risk Application Explorer Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Developer Add-on: Provides additional options for creating customized valuation functions, including the developer interfaces for Risk++ and RiskScript. Risk++ consists of a set of C++ libraries, and RiskScript is a variant of Visual Basic for Applications (VBA) language. Algo One Developer Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Dynamic Strategies Add-on: Helps to improve hedge effectiveness and lower hedging costs with risk management tools for optimizing trading strategies. Simulation results give insights on what is best to trade, how much, and when, based on multiple market scenarios that outline the potential profit and loss impacts. Algo One Dynamic Strategies Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Commodity Models Add-on: Includes standard valuation models for commodities, including valuations based on forward pricing using constant maturity or a rolling nearby process, and a Schwartz and Smith model. Algo One Commodity Models Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Credit Derivative Models Add-on: Includes standard valuation models for credit derivatives, three types of valuation procedures for synthetic CDOs, Analysis, Convolution, and Monte Carlo, and the means to estimate from market quotes the inputs into the models: base correlation, hazard curves, and spreads. Algo One Credit Derivative Models Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Stochastic Pricing Models Add-on: Includes standard valuation models that facilitate the pricing of exotic derivatives (interest rate, foreign exchange, or equity) using a Monte Carlo approach. Clients can select from a payoff function or specify their own using a straightforward C++ or Python interface. Algo One Stochastic Pricing Models Add-on requires Algo One Foundation and at least one Algo One base component. Algo One MBS/ABS Add-on: Includes standard valuation models for a wide range of interest rate products. Users can build fixed income instruments from terms and IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 4

5 conditions or specify payments individually. Pricing algorithms include discounting, numerical methods, lattices, and Monte Carlo. Supported interest rate evolution processes include forward-based pricing, normal, Hull-White, two-factor Hull-White, Amin-Jarrow, and Black-Karasinski. Algo One MBS/ABS Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Foundation Sobol Option Add-on: Includes the option to utilize socalled "quasi-random" Sobol sequences for typical financial analysis applying Monte Carlo methods. Sobol sequences can help reduce the number of scenarios required to reach a desired level of convergence. Algo One Foundation Sobol Option Add-on requires Algo One Foundation and at least one Algo One base component. Algo One Advanced Simulation Add-on: Enables more efficient re-simulations that are used to drive risk calculations such as VaR and Expected Shortfall. For the large number of repetitive Expected Shortfall calculations required under Fundamental Review of the Trading Book, this module will help firms quickly cascade results and aggregate at the appropriate trading desk levels, and provide more advanced capabilities for analyzing tail risk and analyzing risk attribution. Algo One Advanced Simulation Add-on requires Algo One Foundation and at least one Algo One base component. Algo One High Speed Simulation Extension Add-on: Designed to enable you to increase simulation speeds on specific asset classes of financial instruments. The speed increase is achieved by configuring common modeling assumptions by asset class to optimize simulations of financial instruments within that class. High speed simulation extensions are available for interest rate products, foreign exchange products, equities, credit derivatives, commodities, and energy futures. Algo One High Speed Simulation Extension Add-On requires Algo One Foundation and at least one Algo One base component. Algo Integrated Market and Credit Risk Algo Integrated Market and Credit Risk is an enterprise solution designed to measure and manage financial market and credit risk across all asset classes, product types, and industry sectors. This solution supports Basel III internal models, and is designed to address middle office requirements for extensive analysis and reporting and front office requirements for rapid information. Interactive decision support for the front office enables traders to competitively price risk-reducing trades. This capability helps firms to do more business without increasing exposure. Firms that need to improve risk-based decision making and lower operational costs can utilize the Algo Integrated Market and Credit Risk solution to help intelligently manage risk capital and increase risk-adjusted returns. Base options include Algo One Market Risk Base, and Algo One Counterparty Credit Risk Base. New in Version 5.1 New market risk functionality to help firms meet regulatory requirements related to the Fundamental Review of the Trading Book, including the new add-ons: Algo One Market Risk Incremental Default Risk Charge, Algo One Market Risk Standardized Approach, Algo One Advanced Simulation, Algo One Market Risk Limits, Algo One Market Risk Real-Time New credit risk add-on Algo One Counterparty Credit Risk Standardized Approach to help firms meet regulatory requirements related to the Standardized Approach for measuring Counterparty Credit Risk New credit risk add-on Algo One Counterparty Credit Risk Advanced xva, to help firms further refine their derivatives pricing by including additional valuation adjustments collectively known as xvas IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 5

6 Solution packaging Algo One Market Risk Base: This market-risk-base solution provides the capability to compute market-risk measures (for example, VaR and expected shortfall) by using simulation methods such as historical or Monte Carlo methods or using a parametric approach on an end-of-day or intraday frequency. This solution also includes the capability to conduct stress testing and sensitivity analysis. Algo One Market Risk Base requires Algo One Foundation and at least one of the following: Algo One Risk Application Explorer Add-on Algo One Risk & Financial Engineering Workbench Add-on Algo One Counterparty Credit and Market Risk Workspace Add-on Algo One Counterparty Credit Risk Base: Provides the capability to calculate pre-settlement, counterparty, credit-risk measures (for example, potential future exposures) on an end-of-day or intraday batch frequency. The counterparty, credit risk measures are calculated taking into account netting and collateral agreements that are entered into between the client and its counterparties. The system also provides the capability to develop custom aggregation functions. The Algo One Counterparty Credit Risk Base solution serves as the foundation layer for real-time counterparty credit risk analysis. Algo One Counterparty Credit Risk Base requires Algo One Foundation and at least one of the following: Algo One Risk Application Explorer Add-on Algo One Risk & Financial Engineering Workbench Add-on Algo One Counterparty Credit and Market Risk Workspace Add-on Algo One Counterparty Credit and Market Risk Workspace Add-on: Includes web-based GUIs for: Maintaining static market and credit data including market risk hierarchies, counterparty structures, counterparty netting hierarchies, Credit Support Annex parameters, counterparty limits, and trading policy restrictions. Monitoring the current counterparty exposures and limit utilization. Monitoring market risk measures and limit utilization. Reporting and managing limit violations (excesses). This interface provides drill down and filtering capability by allowing users to zero-in on violations based on selected criteria and view the details of the offending deals. The workspace supports full audit and revision history. You can trace changes made to the system. Algo One Counterparty Credit and Market Risk Workspace Add-on requires either Algo One Market Risk Base or Algo One Counterparty Credit Risk Base. Algo One Market Risk Incremental Default Risk Charge Add-on: Provides the ability to measure IDR charge based on a 99.9 percentile VaR calculation using a one-year time horizon assuming constant positions over the one-year horizon. This module will compute IDR for all instruments that are subject to issuer risk, including sovereign bonds and equities as well as equity indices. The computation will be based on a two-factor systemic model and will include correlated recovery rates. Algo One Incremental Default Risk Charge Add-on requires Algo One Market Risk Base and Algo One Credit Derivative Models Add-on. Algo One Market Risk Standardized Approach Add-on: Under FRTB the standardized approach is now mandatory, and will be based on a sensitivity approach. This module will include the functionality to compute the regulatory prescribed sensitivities (for example, delta, curvature, and vega) as well as accept IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 6

7 sensitivities from external systems and aggregate the sensitivities using the prescribed risk weights and correlations. Algo One Market Risk Standardized Approach Add-on requires Algo One Market Risk Base. Algo One Market Risk Limits Add-on: The limits module provides the capability to set and maintain limits on market risk measures. Limits can also be set and monitored on additional reporting dimensions including (but not limited to) portfolio and desk-level, product or maturity bucket. The system also supports excess monitoring, temporary limit overrides, and target limits. Algo One Market Risk Limits Add-on requires Algo One Market Risk Base and the Algo One Counterparty Credit and Market Risk Workspace Add-on. Algo One Market Risk Real-Time Add-on: The real-time module provides support for calculating incremental market risk measures (including FRTB measures), as new trades are committed. This module also provides support for pre-deal checks, including low-latency trading support. Algo One Market Risk Real-Time Add-on requires Algo One Market Risk Base and the Algo One Counterparty Credit and Market Risk Workspace Add-on. Algo One Market Risk Fundamental Review of the Trading Book Add-on: This module includes the functionality available to Algo One Advanced Simulation Add-on, Algo One Market Risk Incremental Default Risk Charge Add-on, and Algo One Market Risk Standardized Approach Add-on. Algo One Market Risk Fundamental Review of the Trading Book Add-on requires Algo One Market Risk Base and the Algo One Counterparty Credit and Market Risk Workspace Add-on. Algo One Counterparty Credit Risk CVA Add-on: This module builds on the Algo One Counterparty Credit Risk Base solution and allows you to calculate unilateral or bilateral credit valuation adjustment. The credit-valuation-adjustment module provides the ability to model risk neutral scenarios and marginal probabilities of default, which serve as inputs into the credit valuation adjustment calculation. Algo One Counterparty Credit Risk CVA Add-on requires Algo One Counterparty Credit Risk Base. Algo One Counterparty Credit Risk Advanced xva Add-on: Advanced xva analytics requires banks to model risk and exposure to market and credit risk variables. This module provides integrated market and credit risk calculation techniques including correlated default sampling, capturing of wrong-way risk thorough multifactor credit worthiness modeling, and customized aggregation pools for analyzing expected losses and tail losses. This will allow the calculation of WWR- CVA and FVA at the funding set level. Algo One Counterparty Credit Risk Advanced xva Add-on requires Algo One Counterparty Credit Risk Base. Algo One Counterparty Credit Risk Limits and Excess Management Addon: This limits and excess management module provides the capability to set and maintain limits across levels in the counterparty legal hierarchy. Limits can also be set and monitored on additional reporting dimensions including (but not limited to) industry, rating, country, and cross border risk. The system also supports temporary limit overrides and target limits. Excesses can be monitored against limit thresholds as well as trading policy violations. For example, if a certain desk is not permitted to enter into deals exceeding five years term to maturity, any deal submitted by that desk that exceeds five years term to maturity will be reported as a violation. Algo One Counterparty Credit Risk Limits and Excess Management Add-on requires Algo One Counterparty Credit Risk Base. IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 7

8 Algo One Counterparty Credit Risk Standardized Approach Add-on: Includes a comprehensive, non-modelled approach for measuring counterparty credit risk associated with OTC derivatives, exchange-traded derivatives, and long settlement transactions, which aligns to the Basel Committee's final standard on the standardized approach for measuring counterparty credit risk exposures. Algo One Counterparty Credit Risk Standardized Approach Add-on requires either Algo One Counterparty Credit Risk Base or Algo One Credit Regulatory Capital Base. Algo One Counterparty Credit Risk Real Time Add-on: This real-time module builds on the functionality of all the other modules by facilitating pre-deal decision support. This module provides the ability to: Simulate the impact of entering into a deal with a particular counterparty. Calculate the incremental credit valuation adjustment for a deal. This adjustment can be included in the pricing of the deal. Incorporate the impact of the new deal in the counterparty credit risk exposure. Algo One Counterparty Credit Risk Real Time Add-on requires Algo One Counterparty Credit Risk Base. Algo One Counterparty Credit Risk Real Time API Add-on: The Counterparty Credit Risk Real Time API provides you with the ability to develop custom applications that tap into the rich functionality available in the Counterparty Credit Risk solution. For example, front office traders can extend their existing trading applications to include risk-based information in order to enhance trading strategies. Algo One Counterparty Credit Risk Real Time API Add-on requires Algo One Counterparty Credit Risk Real Time Add-on. Algo One Counterparty Credit Risk Settlement Risk Add-on: This settlement risk module provides the capability to monitor settlement risk for those transactions where a timing mismatch exists between delivery and payment at transaction maturity. Settlement risk is calculated based on the notional amount of the transaction. Algo One Counterparty Credit Risk Settlement Risk Add-on requires Algo One Counterparty Credit Risk Base. Algo Balance Sheet Risk Management Algo Balance Sheet Risk Management enables the measurement and control of risk, associated with interest rate and FX rate changes together with liquidity, taking into account the full range of assets, liabilities, and off-balance-sheet items. This solution provides sophisticated decision support, by combining a comprehensive view of all key risk drivers and metrics at the enterprise level, and the capability to stress, forecast, and optimize over a range of possible changes in portfolios and scenarios. This capability is designed to enhance strategic decision making to optimize growth, profitability, and long-term gains in capital value. Algo Balance Sheet Risk Management is designed for firms that seek to comply with Basel III, improve risk-based decision making, and minimize the liquidity requirements. Algo Balance Sheet Risk Management solution delivers the functionality required to intelligently manage profits, market risk, and liquidity risk on a balance-sheet level and to increase risk-adjusted returns. Users can configure Algo One Dynamic Balance Sheet Analysis to automatically reinvest and re-fund investments, or borrow upon maturity. Base options include Algo One Liquidity Risk Base, and Algo One ALM Base. New in Version Enhancements to automatic rebalancing of the balance sheet for planning purposes as part of the IBM Algo One Dynamic Balance Sheet Analysis Add-on. IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 8

9 Automatic rebalancing closes funding gaps to ensure assets and liabilities (including equity) are matched over time, and clients can flexibly choose the portfolio levels at which to rebalance. The terms of conditions of rebalancing instruments can be selected using template instruments, and separate templates can be used for closing positive or negative gaps. Solution packaging Algo One ALM Base: Asset Liability Management (ALM) is the process banks and financial institutions use to measure and manage the interest-rate risk, liquidity risk, and structural currency risk that exist in core banking activities. Asset and liability committees are typically responsible for setting policies, strategies, and limits on those risk exposures. To this end, this base solution provides financial institutions with an assessment of cash flows, earnings, and market valuation associated with the financial products of the core banking activities through an extensive coverage of pricing models and scenario tools. Analytics such as interest rate and liquidity gap, net interest income, earnings at risk, and economic value of equity are calculated using a single, integrated analytical framework. This comprehensive process features a tailored risk data model capable of handling large volumes of data, a powerful and precise calculation engine that uses common, cash-flow generation, valuation models, and a web-based reporting tool. A wide range of tools, including deterministic and stochastic scenarios within static and dynamic strategies to measure, monitor, and manage the risks arising from maturity mismatch in the core banking activities, are available. This mismatch can arise from optional features included in financial products such as prepayment and loan drawdown, from the volatility of the calibration parameters used to model products with non-contractual maturity, and from parameters used to calibrate the cash-flow generation and pricing model of the financial products. Algo One ALM Base can help asset liability managers construct hedges capable of disentangling balance-sheet-risk trade-offs and provide a framework for addressing interest rates for Basel requirements. Algo One ALM Base requires Algo One Foundation and Algo One Risk Application Explorer Add-on. Algo One ALM Funds Transfer Pricing Add-on: Growth and profitability have always been important to financial institutions, and in global markets today, better analysis is crucial to realizing better results. Algo One ALM Funds Transfer Pricing functionality delivers advanced-funds-transfer pricing analytics to allow organizations to allocate financial costs, based on specific risks such as interest rate risk, credit, liquidity, and applicability to their business lines and calculate the profitability of new and existing products. This add-on enables asset liability managers to measure and manage these funding costs and to allocate the net profit to the various business lines in a consistent manner. Algo One ALM Funds Transfer Pricing Add-on requires Algo One ALM Base. Algo One Liquidity Risk Base: This solution is designed to offer support for the revised guidelines for liquidity risk management by offering data granularity and large-data-volume handling that allows analysis of potential sources of liquidity risk on entity exposures. Accuracy of cash-flow generation is achieved through instrument modeling. This solution for liquidity risk management involves three types of analysis: Funding liquidity risk Market liquidity risk The integration of funding and market liquidity risk IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 9

10 Funding liquidity risk involves granular, cash-flow analysis through risk analytics such as liquidity gap. Advanced tools available help address behavioral assumptions such as runoff of deposits, prepayment of loans and mortgages, loan drawdowns, and options in credit facilities, which can be either predetermined or dynamically dependent on scenario conditions. Non-maturity products are modeled by using industry methods, such as replicating portfolio procedures. Market liquidity risk offers the ability to perform analysis of the potential impact of market risk related factors on the liquidity situation. This includes liquid asset prices, liquidity of individual marketable instruments, and collateral obligations. Market factors available include exchange rates, haircuts, and credit ratings whose impact on the asset value is analyzed along with the potential liquidity that an institution can raise using these assets under a stress condition. The integration of funding and market liquidity risk together with solution stress testing allows the setup of risk-tolerance policies, risk limits, liquid asset buffers, counterbalancing capacity, and contingency plans, as well as survival horizons. Additionally, the liquidity risk base has the ability to dynamically simulate the evolution of the balance sheet, helping users to understand the potential resilience of an institution to adverse conditions. Dynamic assumptions must be considered in survival horizon analysis. This includes, for instance, the ability to roll over short-term funding transactions like deposits. Applying stress scenarios to simulated, business assumptions allows a strong assessment of implications of business development on an overall institution condition under baseline and stress circumstances. Algo One Liquidity Risk Base assists with Basel III liquidity risk requirements through reporting of the liquidity-coverage ratio and net-stable-funding ratio, and required monitoring tools. Algo One Liquidity Risk Base requires Algo One Foundation and Algo One Risk Application Explorer Add-on. Algo One Liquidity Risk Funds Transfer Pricing Add-on: Growth and profitability are important to financial institutions, and in global markets today, better analysis is crucial to realizing better results. This product helps provide the calculation of accounting earnings and an advanced-funds-transfer pricing implementation that allows organizations to allocate financial costs, based on specific risks such as interest-rate risk, credit, liquidity, and options, to their business lines and calculate the profitability of new and existing products. The Funds Transfer Pricing Add-on provides support to measure the liquidity-risk-spread-term structure and charging accordingly, for both contractual and behaviorally modeled instruments. Algo One Liquidity Risk Funds Transfer Pricing Add-On requires Algo One Liquidity Risk Base. Algo One Liquidity Risk FSA UK Liquidity Reports Add-on: This solution helps financial institutions produce the UK Financial Services Authority (FSA) 047 and FSA 048 reports governed by Policy Statement 09/16 - Strengthening Liquidity Standards for the FSA regulatory authorities. This solution is designed to evaluate positions, extract quantities representing cash and security flows, and assign the flow values to output cells defined by the regulatory returns through an end-to-end process. The solution uses pre-defined business rules that assign transactions to the FSA categories, calculates all required analytics, and fills in the templates for the two reports. Algo One Liquidity Risk FSA UK Liquidity Reports Add-On requires Algo One Liquidity Risk Base. Algo One Dynamic Balance Sheet Analysis Add-On builds on the IBM patented technology for dynamic balance sheet strategies, and includes automatic rebalancing of the balance sheet for planning purposes. Using a set of pre-configured, reinvestment and re-funding strategies, users can build dynamic, balance-sheet simulations using a sophisticated macro language, Python. Conditional assumptions such as limits on future cash flow gaps to drive new business, rollovers, and new IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 10

11 funding are supported, as well as stressing the future dynamic assumptions. These simulations allow treasury departments and liquidity managers to perform balance sheet projections and strategy growth planning. This component was created to support the dynamic strategies identified as critical for forecasting bank balance sheets, and to support additional analysis and conditional forecasting. Automatic rebalancing closes funding gaps to ensure assets and liabilities (including equity) are matched over time, and clients can flexibly choose the portfolio levels at which to rebalance. The terms of conditions of rebalancing instruments can be selected using template instruments, and separate templates can be used for closing positive or negative gaps. Pre-defined simulation scripts are provided to evaluate the following investment strategies: Rollover: Maturing products are reinvested in new instruments with selected product characteristics. Repo rollover: A percentage of maturing repo instruments are rolled over to new repo instruments until the underlying instrument matures. New business: New instruments are issued per a prescribed investment curve. Target balance: The issuance of new instruments is analyzed to achieve a target balance for growth curve. Algo One Dynamic Balance Sheet Analysis Add-On requires Algo One Liquidity Risk Base. Algo Capital Management Algo Capital Management provides financial institutions with the tools, technology, and implementation support to help address the challenges of the Basel framework. Offering the ability to generate more accurate, consistent credit regulatory capital measures across the enterprise, the IBM solution helps enable organizations to pursue an overall regulatory capital strategy that goes beyond Basel Accords requirements, to include increasing operational efficiencies, and lowering the cost of capital. Algo One Credit Regulatory Capital solution provides banks with the tools to address these challenges. The solution is designed to generate more accurate and efficient regulatory capital calculations across the enterprise; seamlessly integrate with the Algo One Credit Economic Capital solution that supports concentration and migration risk calculations as well as reconciles regulatory and economic capital; and enhance communication by facilitating transparent risk reporting, as required by Pillar 3 of the Basel II Capital Accord. The Algo One Capital Management solution not only assists in achieving compliance, but also prepares an institution to meet supervisory expectations, and to manage credit risk and capital more effectively across the enterprise. It offers: Simplified supervisory formula approach for securitization Support of internal ratings for Standardized CVA calculations Support for CRD IV (exposure to public sector equity, unrated institutions, and regional governments) Cognos Framework Manager model generator Base options include Algo One Regulatory Capital Base, and Algo One Economic Capital Base. New in Version Enhancements to Algo One Credit Economic Capital Base with a new pooling feature and Cognos reporting templates. Pooled guarantees - Allows large banking books with embedded guarantees to be pooled across traditional criteria such as ratings, geographies, and asset types Cognos reporting templates - Provides a new look and feel Solution packaging IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 11

12 Algo One Credit Economic Capital Base is a solution designed to help financial institutions manage portfolio credit risk and economic capital. It can scale efficiently to accommodate portfolios of any size and composition, enabling firms to more effectively balance risk appetite and diversification. The solution helps firms meet regulatory reporting requirements and make active asset allocation decisions, with portfolio management tools for optimizing risk-adjusted returns, and advanced stress testing functionality to provide a deeper understanding of the portfolio through explicit shocks to risk factors, as well as detailed scenario and what-if analysis. Extensive product coverage supports exchange traded and over-thecounter (OTC) instruments, structured products, and high volume pooling for retail, small and medium enterprise (SME), and corporate loan markets. Algo One Credit Economic Capital Base requires Algo One Foundation and Algo One Risk Application Explorer Add-on. Algo One Credit Economic Capital Advanced Add-on: The advanced add-on for credit economic capital provides full valuation of instruments sensitive to market risk factors which provides a credit loss profile that incorporates both market and credit risk. This approach can be used for both OTC and exchange traded instruments and allows users to additionally stress market risk factors such as interest rates, foreign exchange rates, equity prices, commodity prices, and credit spreads to see the impact on portfolio credit losses and economic capital. Algo One Credit Economic Capital Advanced Add-on requires Algo Credit (R) Economic Capital Base. Algo One Credit Regulatory Capital Base is a solution designed to help with Basel regulatory capital calculations and reporting covering the Basel regulatory capital approaches (Basel I, Basel II Standardized, Foundation and Advanced IRB, and Basel III) across portfolios and bank asset classes including retail, commercial, corporate, trading, and securitizations. The calculation engine can simultaneously calculate risk-weighted asset and other measures required for reporting under multiple home or host multi-jurisdictional regulatory rules. Risk-weight assets are calculated at the most granular transaction level and can be aggregated up to legal entity or business unit level or other aggregation keys. The Algo One Credit Regulatory Capital Base solution comes with pre-configured slice and dice management reports. Algo One Credit Regulatory Capital Base requires Algo One Foundation and Algo One Risk Application Explorer Add-on. Algo One Credit Regulatory Capital Advanced Add-on: Helps to enable risk-weighted assets and capital requirement calculations under Foundation and Advanced Internal Ratings-based approaches designed to verify the ideal allocation of actions to mitigate the exposures of the bank to minimize the resultant riskweighted assets and capital requirements. Algo One Credit Regulatory Capital Advanced Add-on requires Algo Credit Regulatory Capital Base. Algo One Credit Regulatory Capital Regulatory Reporting Add-on: Helps to enable generation of regulatory reports based on the rules of regulatory agencies, Federal Financial Institutions Examination Council (FFIEC) reports in the case of US Final rule. Algo One Credit Regulatory Capital Regulatory Reporting Add-on requires Algo Credit Regulatory Capital Base. Algo One Credit Regulatory Capital Basel III Add-on: Changes the regulatory capital calculations in accordance with Basel III rules and introduces new measures (Standardized Credit Value Adjustment, and Accounting Exposure for leverage ratio calculations). Algo One Credit Regulatory Capital Basel III Add-on requires Algo Credit Regulatory Capital Base. IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 12

13 Algo Portfolio Construction and Risk Management - Installed Edition Algo Portfolio Construction and Risk Management helps asset owners and managers, or their asset servicers, succeed in tough financial markets by providing an integrated risk framework designed to help optimize portfolio performance, achieve better risk oversight, and address increasing client and regulatory demands. This solution is specifically designed to provide access to sophisticated risk management and investment decision support tools to help improve investor confidence and achieve regulatory compliance. Base options for this solution include Algo One Buy Side Base. New in Version 5.1 Further enhancements to the counterparty credit risk functionality, which includes: New Algo One Buy Side Credit Risk Add-on Allows for computing issuer risk via measures such as CVaR at both absolute and relative portfolio levels Includes existing counterparty risk functionality such as computing Potential Future Exposures and Credit Value Adjustments (CVA) Enhancements in risk analysis dashboards Search and what-if capabilities Support for Internet Explorer 11 Performance enhancements Solution packaging Algo One Buy Side Base: Provides the capability to calculate risk on portfolios of financial assets both on an absolute basis or with respect to benchmarks on a relative basis, as well as on an end-of-day or intraday batch frequency. Algo One Buy Side Base requires Algo One Foundation and either Algo One Risk Application Explorer Add-on or Algo One Foundation Risk Application Explorer and Connect Add-on. Algo One Buy Side Connect Add-on: Provides an API for the Risk Application Explorer. It allows users to embed the Algo One Risk Application Explorer risk calculations within their applications. Algo One Buy Side Connect Add-on requires Algo One Buy Side Base. Algo One Foundation Risk Application Explorer and Connect Add-on: Provides clients with the interactive risk management browser-based dashboard. It also provides an Application Program Interface (API) to the Risk Application Explorer's calculations. Algo One Risk Application Explorer and Connect Add-on requires Algo One Buy Side Base. Algo One Buy Side Optimization Add-on: Enables users to create replicating portfolios with respect to a benchmark (for example, life insurance liabilities) and to create portfolios with optimized risk and return characteristics with the Risk Application Explorer. Portfolios can be enhanced on an absolute or relative basis and can take into consideration investment constraints (for example, no shorting, asset allocation constraints, duration limits) and trading constraints. Algo One Optimization Add-on requires Algo One Buy Side Base. Algo One Buy Side Credit Risk Add-on: Provides clients with the ability to perform several types of credit risk analysis including measuring counterparty credit exposures, credit value adjustment (CVA), and portfolio credit risk (default and migration). IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 13

14 Algo One Risk Buy Side Credit Risk Add-on requires Algo One Buy Side Base. Algo Economic Capital, ERM & Solvency II - Enterprise Edition This solution helps insurers manage balance-sheet risk exposures (market and nonmarket) for economic capital, solvency capital, and risk management purposes. The solution includes advanced asset modeling and proxy liability modeling (for example, replication portfolios, curve fitting) capabilities and is designed to deliver timely and valuable information to risk managers, actuaries, portfolio managers, and senior management to enable tactical and strategic business decision making as well as regulatory compliance. Covering analytics, workflow, and reporting, the solution can be used by insurers for multiple purposes for better business performance, including managing economic capital, regulatory capital, and investment risk as well as for ALM and M&A analysis. Base options for this solution include Algo One Buy Side Base. New in Version 5.1 Additional counterparty credit risk functionality: New credit measures related to exposure and margins Support for Credit Valuation Adjustments (CVA) Support for Physical Settlement during credit simulations Enhanced capital workflow capabilities: Improved data management and storage Improved capital reports workflow Simplified reporting period setup Support for client-specific adjustments to scenario sets Improved error messaging Performance enhancements Solution packaging Algo One Buy Side Base: Provides the capability to calculate risk on portfolios of financial assets both on an absolute basis or with respect to benchmarks on a relative basis, as well as on an end-of-day or intraday batch frequency. Algo One Buy Side Base requires Algo One Foundation and either Algo One Risk Application Explorer Add-on or Algo One Foundation Risk Application Explorer and Connect Add-on. Algo One Buy Side Connect Add-on: Provides an API for the Risk Application Explorer. It allows users to embed the Algo One Risk Application Explorer risk calculations within their applications. Algo One Buy Side Connect Add-on requires Algo One Buy Side Base. Algo One Foundation Risk Application Explorer and Connect Add-on: Provides clients with the interactive risk management browser-based dashboard. It also provides an Application Program Interface (API) to the Risk Application Explorer's calculations. Algo One Risk Application Explorer and Connect Add-on requires Algo One Buy Side Base. Algo One Buy Side Optimization Add-on: Enables users to create replicating portfolios with respect to a benchmark (for example, life insurance liabilities) and to create portfolios with optimized risk and return characteristics with the Risk Application Explorer. Portfolios can be enhanced on an absolute or relative basis and IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 14

15 can take into consideration investment constraints (for example, no shorting, asset allocation constraints, duration limits) and trading constraints. Algo One Optimization Add-on requires Algo One Buy Side Base. Algo One Buy Side Standard Formula Add-on: Extends Algo One Risk Explorer to include the Buy Side Standard Formula calculations. Algo One Buy Side Standard Formula Add-on requires Algo One Buy Side Base. Algo One Buy Side Capital Workflow Manager Add-on: A workflow and audit tool designed to manage insurers' economic capital and Solvency II modeling process. It tracks key data items and approval processes for key modeling decisions. This add-on ensures reliable, validated, and reproducible risk and capital information that can be used in business decision making. Algo One Buy Side Capital Workflow Manager Add-on requires Algo One Buy Side Base. Algo Investment Design for Wealth Management Algo Investment Design for Wealth Management is a powerful investment analytics solution that delivers an innovative engagement model for wealth advisors and investors to provide a personalized and consistent investment experience. Offers advanced analytics for portfolio performance monitoring Portfolio performance monitoring offers wealth managers the capability to monitor the risk and return profile of client portfolios, and enables exception reporting that deviates from the targeted profile, to enable swift rebalancing. This monitoring includes Value at Risk (VaR), but also extends beyond such standard measures to include more advanced analytics such as Monte Carlo multi-step simulations. Provides multi-period simulation for building long-term investment portfolios Multi-period simulation provides simulation of risk and return profiles over time to support the building of consistent and optimal long-term investment portfolios. The built-in aggregation engine enables simulated data to be aggregated at a portfolio level, for example, providing market views for an overall client portfolio. Provides simulated data feeds to strengthen relationships with clients Simulated data feeds into proprietary or third-party financial planning systems enable the delivery of the output for compliance and reporting purposes. This is designed to strengthen the wealth manager relationship with clients as the whole financial planning infrastructure (data, risk analytics software, and outputs from their own financial planning systems) is private-labeled, so that all that is seen from the client perspective is the brand of their wealth manager. Designed to protect the confidentiality of business-critical information The solution is designed to protect the confidentiality of business-critical information, as wealth managers do not need to disclose client-level data at any point in the process. Instead, simulated data sets cover instruments across all asset classes, requiring only the selection of instruments from the data matching the underlying structure of the specific investor portfolio. Base options for this solution include Algo One Buy Side Base. New in Version 5.1: Enhancement to risk analysis dashboards Solution packaging IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 15

16 Algo One Buy Side Base: Provides the capability to calculate risk on portfolios of financial assets both on an absolute basis or with respect to benchmarks on a relative basis, as well as on an end-of-day or intraday batch frequency. Algo One Buy Side Base requires Algo One Foundation and Algo One Risk Application Explorer Add-on. Algo One Buy Side Connect Add-on: Provides an API for the Risk Application Explorer. It allows users to embed the Algo One Risk Application Explorer risk calculations within their applications. Algo One Buy Side Connect Add-on requires Algo One Buy Side Base. Algo One Buy Side Optimization Add-on: Enables users to create replicating portfolios with respect to a benchmark (for example, life insurance liabilities) and to create portfolios with optimized risk and return characteristics with the Risk Application Explorer. Portfolios can be enhanced on an absolute or relative basis and can take into consideration investment constraints (for example, no shorting, asset allocation constraints, duration limits) and trading constraints. Algo One Optimization Add-on requires Algo One Buy Side Base. Algo on-cloud solutions that support Algo Investment Design for Wealth Management These solutions are part of the Algo One Managed Data Services on Cloud offering. For details on these solutions and ordering information, refer to Software Announcement , dated October 2, Algo One Buy-Side Managed Data Service - Reference Market Data On Cloud: Offers automatic daily collection and storage of raw market data, such as prices, interest rates, credit spreads, and volatilities, as well as daily tracking of risk factors. Helps ensure financial securities are structured accurately by leveraging their term sheets. These term sheets are collected on a continuous basis for all new issues of various financial securities, such as bonds, insurance contracts, and listed derivatives. All issued funds are also structured by leveraging their fact sheets. These fact sheets are collected and updated on a continuous basis, for all new issues of funds. All data is validated. During the data cleansing process, all data changes are tracked and saved for auditing purposes. This helps to ensure adherence to internal or regulatory requirements. Algo One Buy-Side Managed Data Service - Reference Market Data Integration Add-on On Cloud: A set of financial securities can be extended as requested by a financial institution. Moreover, private placements or internally structured securities without an ISIN code or CUSIPs can be structured from a client's corresponding term sheets, to be included in the service in a consistent fashion with those securities containing an ISIN code. A large set of securities with ISIN or CUSIP codes are covered, including but not limited to investment funds, government bonds, corporate bonds, financial bonds (plain, equity linked, and foreign exchange linked), as well as currency exposures. This is facilitated by tailored approaches to collating and structuring both securities and funds data. Program number Program number VRM Program name 5725-H IBM Algo One Offering Information IBM ed States Software Announcement IBM is a registered trademark of International Business Machines Corporation 16