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QRM – Quantitative Risk Managment


QRM Homepage, here. So QRM has some code out there in production to do balance sheet optimization and Capital  One are the only folks who can use it successfully. From Glass door it sounds like some of the code is Java. Competitors include: Bancware, Polypath, Kamakura,

Timeline of Innovations:

1987 – QRM was founded with the vision to apply modern option pricing theory to the problems of a mortgage pipeline and bank balance sheet. Market risk of entire mortgage banking position or bank balance sheet was accurately summarized on a single sheet of paper.
Developed a variable quantity option model used to determine the interest rate risk, value, and optimal hedge positions for a mortgage pipeline.
Late 1980s – Developed an option-adjusted spread approach to determining the value and interest rate risk of deposit accounts

Developed and assisted clients in adopting an option-adjusted spread-based methodology for asset-liability management and secondary marketing

Early 1990s – Drove clients towards portfolio optimization and use of complex derivatives in the ALM process
Drove clients to integrate true market value analysis and interest income forecasting (including forward market value analysis on a dynamic balance sheet)

Late 1990s – Drove industry to utilize stochastic simulations within their ALM forecasts (multiple-rate scenarios, market and NII)
Assisted clients with integrating multi-currency VaR into their ALM processes
Developed the first option-adjusted FTP/profitability process

Early 2000s – QRM clients were the first to integrate credit risk management processes into their balance sheet management practice
Enabled clients to distribute planning and forecasting (SVA) to the business line and cost center level
Late 2000s – Drove clients to forecast interest rate, currency, and economic scenarios at the same time, in order to provide a total risk view for planning economic and regulatory capital. Led clients to develop Basel II methods that enable forecasting of future capital positions and regulatory requirements

Asset & Liability Managment

Precisely Model the Optionality in the Balance Sheet and Your Exposure to Interest Rate Risk
Our Asset-Liability Management & Market Risk engagement enables clients to model even the most complex assets, liabilities, and off-balance-sheet instruments. QRM consultants work with clients to accurately price instruments’ embedded optionality, whether it is a cap or floor, an option to enter a swap, or a prepayment option. QRM consultants have experience with all academic pricing models, including multi-factor forward rate models such as HJM and BGM. In addition, our clients ensure that all hedge accounting standards, including FAS133, 157, 159 and IAS 39, are satisfied when modeling the balance sheet.

Clients build behavioral models to capture all instrument prepayment, re-pricing, and decay characteristics. QRM’s Behavioral Modeling team assists in building parameterized prepayment and core deposit models that truly reflect observed customer behavior. QRM also partners with clients to integrate their current prepayment models into the modeling process. Popular third party models are often incorporated into the client’s risk process as well.

Accurately and Thoroughly Measure the Risk of Your Balance Sheet under Any Economic Scenario
QRM clients obtain a greater understanding of their risk profiles because of their ability to generate dynamic forecasts using trading-quality models. Our clients have moved beyond gap analysis to measure sensitivity in greater detail. They create both deterministic and stochastically generated forecasts that introduce currency and economic scenarios. In addition, the introduction of more advanced measures such as key rate analyses allows managers to account for changes in the shape of the yield curve. Clients create and integrate their growth, reinvestment, and re-pricing rules into a comprehensive earnings and value forecast to understand how multiple rate scenarios will affect their current business plans. QRM also works with clients to build multi-currency value-at-risk processes that provide the market risk and earnings-at-risk assessments needed to comprehensively understand the impact of changes in correlated interest and currency rates.

Integrating market valuation into their earnings forecasts, our clients are able to perform future market valuations and total return analysis. The recent financial pronouncements regarding Fair Value are moving GAAP accounting close to a true Profit & Loss- (“P&L”) based income statement reflective of current market conditions. As a result of this convergence, organizations desiring to establish an effective earnings forecasting process must adopt a total return framework. QRM clients establish forecasting processes capable of marking each asset or liability to market in future periods and recording the profit or loss to income. Our clients understand how the P&L will change through time based upon multiple forecasted environments, and also how the risk-reward profile may change.

Glassdoor, QRM, here.


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