Open Source Tools

Motivation for Building an open source database based on EBA’s Standardized NPL Templates

In an insightful recent piece, “Overcoming non-performing loan market failures with transaction platforms”, Fell et al. dug deeply into the market failures that help perpetuate the Non-performing loan (NPL) problem. They highlight, in particular, information asymmetries and the attendant costs of valuing NPL portfolios as key obstacles. In the same wavelength, the European Banking Authority published standardized NPL data templates as a step towards reducing the obstacles that prevent the reduction of NPL’s.

Four individuals that can look straight into your eyes

Here are four individuals that can look straight into your eyes

• Torvalds developed the #linux operating system, the software engine now powering anything from the tiniest #raspberrypi to the scariest supercomputer. Humanity’s best guarantee that the digital era remains an equal playing field
• Mullenweg developed the #wordpress blogging platform. Gave voice and content ownership to millions of digital authors making him the closest to the Gutenberg of our era
• Dougiamas developed #moodle, the world’s digital Academy. Capturing millenia of teacher’s experience into one powerful #elearning system makes him an educational innovator on a par with the Greek masters of antiquity
• Wales developed #wikipedia. It is not only the world’s digital encyclopedia and top 5 website. It is the most blinding evidence that tech enabled mass collaboration will change the human condition

They are all different characters from different walks of life. Yet they are united by the power of the #opensource software movement.

Transition Matrix Library First Release

Open Risk released version 0.1 of the Transition Matrix Library

Motivation

State transition phenomena where a system exhibits stochastic (random) migration between well-defined discrete states (see picture below for an illustration) are very common in a variety of fields. Depending on the precise specification and modelling assumptions they may go under the name of multi-state models, Markov chain models or state-space models.

Loan Level Templates Using Python

In this Open Risk Academy course we figure step by step how to use python to work with Loan Level Templates, using the ECB SME template as an example.

• Overview of the loan level template
• Manipulating spreadsheets with Python
• The Python Dictionary
• Organization of Portfolio Data
• Generating Test Portfolios

Get an Open Risk Academy account and get started with the course here

Transparency, collaboration key to regaining trust in financial services

In banking, confidence is the first order of business

Maintaining the confidence of market participants, clients, shareholders, regulators and governments is uniquely important for the financial sector. Trust is, quite literally, the real currency. Yet it is a truism that confidence is hard to build up and rather easy to destroy. Why is this so?

How much digital bank can we fit in a 50 euro bill?

Much has been said about the impact of Big Data and high-end GPU computing on the provision of digital financial services. At Open Risk we wanted to explore the boundary of what is possible at the diametrically opposite end of the cost spectrum:

Risk Management Internship

In finance, it’s the best of times, it’s the worst of times

It is a special moment to start a career in financial services. We are walking amid the ruins of the previous financial order. Fallen banks, broken markets, negative interest rates, shell-shocked economies and discredited theoretical assumptions. We see the enormous cost and impact to the welfare of society of a less than perfect financial system which has not kept pace with the advancement of our general knowledge and technical capabilities in most other domains.

Open Risk is proud to be funded by the FIWARE FINODEX accelerator!

Finodex, the European accelerator for ICT projects based on Open Data and FIWARE technologies, has already chosen over one hundred projects via two open calls for proposal.

This week the results of the second call evaluation closed in last September have been published, and 52 projects from a total of 297 have been chosen by a panel of experts. These projects will join the other 49 selected in the first open call.

Open Risk API

If you work in financial risk management you will most likely recognize where the following sentence is coming from:

One of the most significant lessons learned from the global financial crisis that began in 2007 was that banks information technology (IT) and data architectures were inadequate to support the broad management of financial risks. This had severe consequences to the banks themselves and to the stability of the financial system as a whole

Risk modeling is as much art as it is science

The Zen of Modeling aims to capture the struggle for risk modeling beauty

1. An undocumented risk model is only a computer program
2. A risk model that cannot be programmed is only a concept
3. A risk model only comes to life with empirical validation
4. Correct implementation of an imperfect model is better than wrong implementation of a perfect model
5. In complex systems there is always more than one path to a risk model
6. There are no persistently true models but there are many persistently wrong models
7. Correlation is imperfectly correlated with causation
8. Nirvana is the simplest model that is fit for purpose
9. Hierarchical systems lead to hierarchical models. Uncertainty is highest at the top
10. Model assumptions are more vulnerable than model structure
11. Building risk models is easy, managing model risk is not
12. Models inherit their nature from their creators, but nurture from their use environment
13. Models don’t speak people’s languages. It is the responsibility of the modeler to translate to an understandable idiom
14. People don’t care about models, only about model outcomes. It is the responsibility of the modeler to be responsible.
15. Models closed in black boxes perish. Models live a healthy life when open and free.

Update May 2017: The Zen of Modeling has also been integrated into the Open Risk Manual to enable easier linking to the knowledge based developed there.

The four stages of social

Homo Staticus

The web as we now know it burst first into the open in the early nineties. It certainly did not start among the more socially active classes. It was an invention by and for nerdy CERN physicists, to exchange data about elementary particle experiments. But it wasn’t long before academics figured out additional valuable uses of this technology: You could put your face online, along with a CV. This is how “personal” webpages came to life. Those early home pages were mostly dour affairs, replete with long publication lists.

Revisiting simple concentration indexes

Our white paper Revisiting simple concentration indexes reviews the definitions of widely used concentration metrics such as the concentration ratio, the HHI index and the Gini and clarify their meaning and relationships.

This new analytic framework helps clarify the apparent arbitrariness of simple concentration indexes and brings to the fore the underlying unifying concept behind these metrics, thereby enabling their more informed use in portfolio and risk management applications.

This page is a summary of a presentation given at the 2014 Autumn TopQuants Meeting, aka, the Open Source Risk Modeling Manifesto.

The dismal state of quantitative risk modeling

The current framework of internal risk modeling at financial institutions has had a fatal triple stroke. We saw in quick sequence: market risk, operational risk, and credit risk measurement failures, covering practically all business models.

Financial Risk Modelling has suffered enormous setbacks in recent years, with all major strands of modelling (market, credit, operational risk) proven to have debilitating limitations. It is impossible to imagine a modern financial system that does not make extensive use of risk quantification tools, yet rebuilding confidence that these tools are fit-for-purpose will require significant changes. These need to improve governance, transparency, quality standards and in some areas even the development of completely new strands of modelling.

Open Risk Presentation summarizing the Public Beta Phase

Overview of the motivation for initiating Open Risk and the solutions being delivered in the current phase.

• Venue: Online
• Location: The world
• Time: September 18th 2014
• Link to presentation: Open Risk Overview

A Python module of analytic solutions suitable for testing credit portfolio models has been uploaded in the Open Risk github repository

The first batch of open source tools focusing on Credit Portfolio calculations is now available here. The functionality aims to standardize Name Concentration Measurement (concentrationMetrics)