Market scenario generator of the year: Conning

Market scenario generator of the year: Conning

Conning’s GEMS economic scenario generator is an integrated market risk engine. The stochastic simulation platform allows financial services firms to test business models and investment strategies against a wide variety of economic conditions for the purposes of portfolio and risk management.

GEMS generates a comprehensive set of financial, economic and macroeconomic variables, and is distinguished for its ability to credibly simulate realistic tail-risk events. More broadly, there is a larger range of asset classes than in competing software, and users can introduce new/bespoke asset types. Multiple currency zones are also parametrised. Users can edit and view all the models and parameters, and use a range of calibration and target parametrisation tools, including for stress-testing.

The calibration methodology, which proved itself in capturing the impact of Covid-19, was formulated, and is regularly updated using Conning’s unique quantitative and investment expertise. And there have been wide-ranging improvements to the GEMS recalibration tool in the past 12 months.

GEMS has been helping institutional investors model inflation, which has been particularly challenging over the past year. The inflation subindexes model can project inflation for separate sectors with a new level of granularity, so financial services firms can more accurately capture how inflation may impact different areas of their business. The built-in recalibration tool allows them to recalibrate the inflation model quickly and easily.

GEMS stress-testing is helping financial services firms to further understand how inflation will develop in this new age of volatility. The judges were also impressed with the platform’s innovative capabilities in this area.

GEMS stochastic models generate new combinations of stresses and produce novel events, and the platform makes it easier to analyse the distribution of scenarios. To make the scenarios less abstract, users can augment the models with specific stress tests. They can specify one or more elements of the model – for example, an interest rate stress – and define how the yield curve will move over time. However, they can leave the model to generate a stochastic distribution for other variables, such as equity returns or foreign exchange. During times of market volatility such as this, financial services firms can use this capability to strengthen the stress tests defined by their management.

GEMS offers a set of 10 stress tests based on historical events, such as the global financial crisis that began in 2007–08. Conning has collected, analysed and cleaned the historical data to produce a set of stresses that can be applied to current market conditions. Financial services firms can use these stresses within their capital models or strategic asset allocation process to gain insight into how their business would react if faced with a crisis.

Judges said:

  • “Solid, market-linked platform.”
  • “Strong product with excellent and innovative stress-testing capabilities.”

Matthew Lightwood, director, risk solutions at Conning, says:

Matthew Lightwood, Conning

“The team behind GEMS is proud to have won this award. It is welcome recognition for a decades-long commitment to developing market-leading models within a platform that is easy to use and flexible in terms of its functionality in areas such as stress-testing, model-building and climate risk. Our user base has been pleased with the performance of our parameterisation as interest rates have increased; in particular, they appreciate that GEMS has maintained parameter stability even in the face of recent higher market volatility.”

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