How can we better understand the key drivers of profit and loss –and use that information to fuel improved decision-making? To tackle this question, Numerix hosted a solution-based webinar, PnL Explain: Strategic Trading Book Insights for Traders, Risk Managers & Other Stakeholders. In case you missed our live session, we've packaged up the top takeaways in today’s blog.
Moderated by Udi Sela, SVP, Product & Field Marketing and featuring, Krupal Rachh, Executive Director, Market Risk Product Management, the webinar showcased how Numerix’s PnL Explain analytics in Oneview provide valuable insights that can inform daily trading and risk decisions.
What are Profit and Loss (PnL) Explain analytics?
PnL Explain is a method used to understand the key drivers of profit and loss, and their significance in risk management, hedging, portfolio management and model reconciliation. PnL Explain analytics have been used by traders and risk managers for years across the buy and sell side alike. With the rise in multi-asset class portfolios and the need to navigate volatile markets, firms are finding that closely monitoring the various risk factors that impact PnL is a major priority.
Why are PnL Explain analytics important?
PnL Explain is typically based on risk values, particularly Greeks of the underlying trading instruments or portfolio. One can estimate the change in the present value of the portfolio from one period to the next by computing Greeks and using market differences.
The distinction between the explained PnL and the actual mark-to-market PnL represents the ‘unexplained’ or residual PnL. The goal is to minimize the unexplained PnL, ensuring that Greeks explain away most of the changes in the actual PnL.
Relevant Use Cases
PnL Explain helps traders identify the key drivers of risk, enabling them to distinguish between risk factors and random events. This understanding is crucial for assessing performance and selecting the right trading strategies. In the webinar, Krupal discussed specific use cases for PnL Explain, which we outline below.
Actionable Hedging: Robust Greeks are essential for effective hedging and risk management. PnL Explain provides a granular view of risk factors, allowing traders to determine which points on the risk curve need hedging. It also helps allocate liquidity based on vulnerable risk factors.
Portfolio Management and Asset Allocation: Correlations between different asset classes are essential for asset management. PnL Explain helps measure how risk factors move and their impact on the portfolio. It allows for informed decision-making in terms of position sizing and asset allocation.
Model Reconciliation: PnL Explain can identify model differences between front office and back/middle office models. By comparing explained PnL with mark-to-market PnL, organizations can determine which model is more accurate and make informed choices about model selection.
Key Highlights: Numerix’s PnL Explain Functionality
Further in the webinar, Krupal gave attendees a first-hand look at Numerix’s PnL Explain functionality with a live demo of how the solution can display component PnL, risk factors, granular PnL attribution and underlying Greeks. With Numerix Oneview, users are able to customize their views and make ad hoc adjustments for detailed analyses.
Reports can then be viewed through the user interface, in CSV, Excel and PDF formats, or accessed through APIs. Key differentiators of the Numerix offering are transparent calculations, extensive model coverage across asset classes, distributed computing for scalability, as well as robust data cleansing and management processes.
An overview of Numerix’s technology and delivery is as follows:
Scalable Architecture: Numerix's scalable architecture enables you to measure risk at a granular level rather than relying on bucketed sensitivities, ensuring accurate PnL Explain results.
SaaS-Based Model: Numerix operates as a fully cloud-based Software as a Service (SaaS) model hosted on AWS, providing security, availability and convenience, without requiring you to set up or invest in maintaining infrastructure.
Powerful APIs and Workflows: The solution offers a rich set of APIs for clients to interact with the platform, enabling data loading, calculation triggering, report generation and more. Additionally, sophisticated workflows support daily, weekly and end-of-month batch runs.
Round the Clock Support: With 24-hour support and offices worldwide, Numerix ensures continuous operations and the highest caliber assistance.
Get the Full Picture
Watch our on-demand webinar to see Numerix's PnL Explain analytics in action, complete with a live demo and a dynamic Q&A session: PnL Explain: Strategic Trading Book Insights for Traders, Risk Managers & Other Stakeholders.