XVA product of the year: Murex

Asia Risk Technology Awards 2020

In today’s trading environment, ensuring sustainable profitability and compliance with rapidly evolving regulations requires the calculation of multiple value adjustments (XVA) to pricing to reflect cost drivers such as credit, capital, funding and collateral.

Doing so is complex and demands not only sophisticated analytics, but also integrated functionality and high performance computation. Banks in the region are at a wide range of stages in their adoption of XVA and a technology solution must handle not only the detailed technicalities of the calculations, but also the data management and processes that feed them.

Murex addresses the challenges with MX.3 for XVA Management, a comprehensive XVA solution that supports XVA pricing, as well as XVA desk management, accounting adjustments, cost allocation and capital charge reporting.

“Large sophisticated regional banks that have run [an] XVA desk for a number of years must continually adapt their technology as the domain is evolving fast,” says Jie Wang, head of XVA and counterparty risk client services, Murex Asia-Pacific.

The demand for accurate, flexible and yet computationally efficient analytics for credit and funding valuation adjustments is as high as ever, while new XVAs, such as margin value adjustment (MVA) and capital value adjustment (KVA), are being introduced.

Data volumes and computational complexity is growing, while results are being demanded faster, including real-time pricing, intra-day sensitivities and what-if analysis. At the same time, banks must manage the total cost of ownership of the technology to achieve this.

Jie Wang

For these regional institutions moving to a more sophisticated XVA framework, Murex provides the right modelling and coverage of XVA metrics, seamlessly integrated with all trading desks processes. Real-time accurate pricing of XVAs across all desks is becoming the norm, and the ability to efficiently rebalance credit and funding hedges and to automate internal cost transfers policies is critical to streamline a central XVA function’s operations.

“One of our clients, a big four bank in Australia, has gained a competitive advantage thanks to Murex’s asymmetric FVA modelling. They also found the MX.3 XVA solution capabilities around pre-deal what-ifs, intra-day rerun, and granular XVA sensitivities particularly helpful during the Covid-19 market turmoil. The bank is now exploring MVA with Murex.” says Wang.

Less advanced banks that tried prototyping XVA with side-analytics libraries and approximations, or are looking to move from batch XVA computation to real-time XVA pricing and XVA desk management, face different challenges. Typically, these banks suffer from a fragmented infrastructure with data integration issues and an incomplete coverage of their trading positions that makes real-time XVA calculation almost impossible to achieve. This disconnect between the XVA calculation library and the core trade repository leads to reliance on approximations in trade representations and analytics, partial coverage of netting sets and frequent reconciliation breaks, which results in inaccurate hedges and even mispriced trades. Having to manually switch between an XVA pricing library and the core pricing tool to derive the final client prices is inefficient and a potential source of errors.

“For new market adopters moving from batch reporting to incremental XVA pricing and hedging, the integrated MX.3 platform helps overcome the challenges of fragmented infrastructures,” says Wang. “Murex’s full-fledged XVA business solution coverage of XVA pricing, XVA desk management, XVA accounting adjustment, XVA cost allocation and CVA capital charge reporting is helping our Apac clients put in place a robust and holistic XVA framework, adapted to their needs.”

MX.3 for XVA Management is integrated with the platform’s trading functionality, providing a single tool for traders to price, book and risk manage OTC derivatives with full XVA adjustments. As a unified and consistent platform with a single repository of trades, credit data and market data for XVA computation, MX.3 helps ensure accurate capture of trade presentation and eliminates the operational burden of heavy data mapping and reconciliation processes. The extensive product and analytics coverage includes exotics and America Monte Carlo analysis with local regression.

Murex is able to meet the extreme computational demands of CVA, FVA and MVA through the use of a number of advanced technologies, including graphics processing units (GPUs), graph programming and cloud computing. This enables MX.3 for XVA Management to generate XVA results, including XVA sensitivities, in a timely manner.

Recent developments of Murex’s solution include new functionality, such as multi-curve XVA DV01 interest rate risk calculations for more efficient hedging and a packaged solution for the Basel III revised CVA capital charge, as well as cloud deployment to help lower IT costs and shorten implementation time.

Murex is making it easier for clients to deploy new functionality through a dedicated XVA business process as a service (BPaaS). The service is integrated with a client’s MX.3 platform, but is managed and operated by Murex.

“This brings major business benefits without requiring any substantial effort from the client in terms of infrastructure or implementation effort. This new approach to delivering business content will make it easier to continuously deliver innovation while reducing the total cost of ownership of our technology,” says Wang. The MVA BPaasS service is currently being piloted and is expected to be in production in 2021.

One Asia Risk judge said: “Murex offers comprehensive functionality for XVA integrated with its single end-to-end platform. It is making innovative use of cloud-based solutions for improved performance and cost. It demonstrates strong customer engagement and focus.”