Embracing Change Financial Informatics and Risk Analytics Mark D. - - PowerPoint PPT Presentation

Embracing Change

Financial Informatics and Risk Analytics

Mark D. Flood Senior Financial Economist Federal Housing Finance Board

The views expressed are those of the author and do not necessarily reflect official positions of the Federal Housing Finance Board or the U.S. Department of the Treasury.

Federal Home Loan Banking System

• 12 regional Federal Home Loan Banks (FHLBs)
• Owned by members (8000 banks and thrifts)
• ca. $1,000,000,000,000 in aggregate assets
• ca. 100,000 complex financial contracts
• ca. 4.50% capital

Managing Risk

• Analysis requires data and models
• Unstable metadata, due to:
• financial innovation
• model risk
• strategic policy evolution
• Flexibility is the central requirement

Model Risk

Model selection risk Model #1 Model #k . . . Implementation risk Analytics #1 Analytics #n . . . Data input risk Market data Position data Estimation risk Method #1 Method #j . . .

Scalability of Metadata

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Source systems Analytics systems Source systems Analytics systems

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N Cost = (m + n)k

spec + (mn)k map

Cost = k

N + (m + n)k spec + (m + n)k map

Stovepipe topology Numeraire topology

Scalability of Metadata

Stovepipe topology Numeraire topology

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 20 40 60 80 100 120 Cost m n 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 20 40 60 80 100 120 Cost m n

Implementing a Solution

• Requirements:
• Flexible

Auto­generate all significant outputs from metadata

• Scalable

Use the numeraire architecture

• Practical

Use production­quality tools available today

• Portable

Design is self contained and independent of platform

Source systems Analytics systems

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Implementing the Numeraire

Market data

▪ ▪ ▪

Market 1 Market 2 Position data

▪ ▪ ▪

Portfolio 1 Portfolio 2 Data integration Numeraire Analysis

▪ ▪ ▪

Analytics 1 Analytics 2 Analytics 1

Numeraire topology Numeraire component design

Implementing the Numeraire

Analysis Analytics package 1 Analytics package 2 Analytics package 3 (etc…) Position data (formatted) Market data (formatted) pass data pass data pass data Data Integration Ontology editor GUI Data Mapping Manager Metadata Manager Version control repository Database Bespoke (user­maintained) system components Licensed (third­party) system components

LEGEND

Data Market Data GUI Market Data Manager Market data (preliminary) Vendor data 1 Vendor data 3 (etc...) Vendor data 2 Position Data GUI Position Data Manager Position data (preliminary) Portfolio system 3 (etc...) Portfolio system 2 Portfolio system 1

Ontology for Flexible Metadata

Generated SQL­ DDL, XSD, etc.

Metadata

Model Financial data

Data

Information Description logics Frame­based knowledge representation Four­layer metamodel architecture

Ontological structure

TBox Classes Meta­metamodel

Ontology instance

ABox Instances Metamodel User­ maintained with an

• ntology editor

{

Implementing Flexible Metadata

Metadata Manager

<< infrastructure >>

Ontology editor

<< application >>

Version control repository

<< datastore >>

store

Client GUI

<< application >>

artifacts

• ntology

instance

• ntology

config

XSLT processor

<< infrastructure >>

input style

• utput

spec2artifact.xslt Ontological structure

1..* 1..*

numeraire source spec. target spec.

1..* 1..*

Really implementing it

Thank you.