System and method for multi-layer risk analysis

Abstract

A risk analysis method uses a multi-dimensional risk representation that allows a standard OLAP engine to perform analysis on multi-dimensional data corresponding to a portfolio of financial positions. The analysis includes context-dependent, heterogeneous aggregation functions. The multi-dimensional data is represented as a multi-layered multi-dimensional cube (“outer” cube), which consists of dimensions and cells. Each cell includes a set of coordinates and an inner multi-dimensional cube (“inner” cube). Dimensions of the inner cube include all dimensions required for aggregations. Dimensions of the outer cube include only dimensions needed for context (or reporting). An aggregation is performed on the set of measures of the inner cube based on a context for the aggregation provided by the outer cube.

Description

CROSS REFERENCE TO RELATED APPLICATIONS[0001]This application is a continuation application of U.S. patent application Ser. No. 11 / 100,841 filed on Apr. 7, 2005, which claims benefit of U.S. Provisional Application No. 60 / 600,653 filed Aug. 11, 2004 and is a continuation in part application of U.S. patent application Ser. No. 10 / 384,721 filed Mar. 11, 2003. U.S. patent application Ser. No. 10 / 384,721 claims benefit of U.S. Provisional Patent Application No. 60 / 363,641 filed Mar. 11, 2002. The entire disclosures of U.S. Provisional Patent Application Nos. 60 / 600,653 and 60 / 363,641, and U.S. patent application Ser. Nos. 10 / 384,721 and 11 / 100,841 are incorporated herein by reference.BACKGROUND OF THE INVENTION[0002]1. Field of the Invention[0003]The present invention generally relates to a method and a system for performing risk management analysis. More particularly, the present invention relates to a system with a scalable architecture for performing risk management analysis and a me...

AI Technical Summary

Benefits of technology

[0046]Utilizing controllers and brokers as described above, the risk management system of the present invention functions as a risk engine that is scalable to virtually any size. As a processing load of the risk engine increases, additional workers may be added to increase its processing power.

Problems solved by technology

This architecture, although adequate for financial institutions within a certain size, is unable to keep up with increasing volumes of financial data for growing financial institutions.

For example, if there is a merger of two mid-sized financial institutions into one larger institution, the risk engines of either of the institutions would not be able to accommodate the risk-management processing of the other institution.

This typically leads to disparate risk engines within the combined (merged) financial institution, with potentially arbitrary assignment of data to be processed by one or the other of the risk engines.

But even this solution has its limits, as the architecture of the above-described prior-art risk engines can only be scaled up so much.

One significant problem discovered by the present inventors is that the architecture of prior-art risk engines leads to uneven workload distribution, which in turn leads to unacceptable delays in valuation and reductions in the engines' throughput.

However, aggregation functions used in most if not all internal risk models are context-dependent and heterogeneous.

This significantly limits the ability to use the generic analysis mechanism provided by OLAP engines to perform analyses for specific conditions.

That is, commonly used aggregation functions do not allow OLAP engines to be utilized to the fullest extent of their capabilities, because such aggregation functions are context-dependent and heterogeneous, and because the conventional representation of the information to be aggregated cannot be adapted to a generic analysis mechanism.

(A straight algebraic summation operation would yield erroneous results, because the 2D -to-1D projection resulted in the loss of information.)

However, because such an aggregation is non-linear, it is necessary to go back to Table 4 and perform a netting operation by issuer.

As can been seen from the above examples, risk analysis using conventional multi-dimensional cubes cannot be reliably employed in a generic manner to produce results for queries involving context-dependent and heterogeneous aggregation functions.

The above examples show that, with conventional models or algorithms for queries of information, a query may not contain a dimension that provides context for an aggregation, and also may not provide context for separating nodes into homogeneous sets (e.g., the issuer dimension in the above examples).

However, aggregation functions used in most, if not all, conventional internal risk models are context-dependent and heterogeneous.

This severely limits the applicability of the generic analysis provided by OLAP engines.

Such a solution is highly inefficient in terms of time and worker-hours.

Images