Editing Risk Hierarchies 

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      1.      Choose Accounting ® Bank Applications ® SEM Banking ® Market Risk Analysis ® Evaluation Control ® Risk Hierarchy.

The system now displays the initial screen for risk hierarchy maintenance.

      2.      Select or enter an ID for the risk hierarchy.

      3.      Choose a processing type (for example, Create or Change).

If you choose  Create, the system displays the maintenance screen for the header data of the hierarchy:

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                        a.     Enter a short and a long name for the risk hierarchy. If you want to activate an additional authorization check, assign the hierarchy an authorization group. You create authorization groups in Customizing under SAP Banking ® SEM Banking ® Common Settings for Market Risk and ALM ® User Maintenance/Authorization Administration® Maintain Authorization Groups.

                        b.     In Control Interest Area you can see how the risk factors are assigned for the interest area.

You can either freely define the risk factors in the interest area or allow the system to generate them automatically (in the form of reference interest rates) by choosing a yield curve type. We recommend that you let the system generate the reference interest rates automatically from the yield curve.

If you want to define the interest rates, choose Edit ® Control  interest Area ® Freely-Defined Terms

Once you have specified that the risk factors are to be freely definable, you cannot change this setting.

                        c.     Choose the aggregation category that is to be the default aggregation category for the risk hierarchy. You can still override this default setting on the individual hierarchy node level, if required.

                        d.     To edit the structure of the hierarchy, choose  Hierarchy Tree.

When you create a new hierarchy, the system automatically creates a node with the name ROOT. You cannot delete this root node. It represents the starting point for setting up your tree structure.

                        e.     To add nodes, select the root node and choose  Nodes.

In the right hand part of the screen you can specify the node by entering a short name and a long name. The risk category is not assigned by default. You can choose from the following risk categories:

Risk Category	Further Entries Required
Yield curve	Currency, yield curve type The default setting designates all reference interest rates (grid points of the respective yield curve) as risk factors. You do have the option of deleting individual grid points from the risk hierarchy, however. For information on the effects of this, read Treatment of Shifts in the Risk Hierarchy. To regenerate all of the risk factor nodes that are situated under the one that represents a yield curve, in accordance with the most recent definition of the yield curve types, choose Edit ® Regenerate yield curve.
Yield curve (for freely definable terms in the interest area).	Currency, yield curve type, term
Interest rate volatility	Volatility type, term, reference interest rate
Exchange rate	Base currency, target currency You can also leave the target currency field blank. The display currency is then used as the target currency in the risk hierarchy in the later evaluation. See also: Currency Risk Factors in the Risk Hierarchy
Exchange rate volatility	Volatility type, term, base currency, target currency
Security price	Securities
Security volatility	Volatility type, term, security class
Stock index	Security index
Stock index volatility	Volatility type, term, security index
Abstract risk factor	Risk factor name

If you choose  Nodes on a node with risk category “Not assigned” the system generates a subnode. If you choose  Nodes on a node that has been assigned a risk category the system generates a new node on the same level.

                         f.     Nodes for which you have created subnodes are automatically recognized by the system as summarization nodes. In the right-hand area of the screen you can assign an aggregation type to them.

You can choose from the following aggregation types:

·   Same as RH aggregation type

·   Totaled (according to +/- sign)

·   Totaled (absolute amounts)

·   Differentiated

·   Correlated

·   Aggregated (directly preceding nodes)

Below the area for specifying the aggregation type you are also able to se the indicator No value-at-risk below this node for the summarization node. If you have also set the indicator Consolidated value-at-risk in the evaluation type, then for historical simulation and Monte Carlo simulation the system will not calculate the value-at-risk below this node. This enables run time and memory usage to be optimized for these evaluations.

If you have chosen  Change or  Display the system will display to the maintenance interface for the selected hierarchy. Proceed as described above.

      4.      Choose  Save.

Before you save, check the hierarchy to see whether risk categories were created for all end nodes. Choose  Consistency Check.

Result

The risk hierarchy is ready for use in the evaluations. Due to the options for saving evaluation results in the Report Data Memory, and Results Database, from Release 4.61 risk hierarchies are recorded historically. By choosing Create historical version and then entering a version date, you are able to display different versions.