CFaR in the Results Database

You can calculate Cash Flow at Risk (CFaR) in the results database. Your results are stored on the results database.

Prerequisites

CFaR: Customizing, Master Data, and Market Data
Define Portfolio Hierarchies
Cash Flow at Risk is a non-additive key figure. Cash Flow at Risk is not persisted in the results database, but it is persisted on the relevant aggregation levels. The portfolio hierarchy defines these aggregation levels.

In the application menu for Treasury and Risk Management under Market Risk Analyzer Evaluation Control Portfolio Hierarchy Define (transaction AFWPH), you create your portfolio hierarchies.
Example
1. Choose New Entries.
2. In the Portfolio Hierarchy column, enter a three-digit number as the ID for the new portfolio hierarchy.
3. In the Authorization Group column, you can assign an authorization group to the portfolio hierarchy.
4. In the Filter column, you can assign a filter.
  
  Note
  You can use a filter to store selection criteria for financial objects for which you want to calculate a key figure. If you want to use this special portfolio hierarchy for a particular group of financial objects, define a filter and assign it in this column. In the application menu for Treasury and Risk Management under Market Risk Analyzer Evaluation Control Results Database Define Filter (transaction AFWFL), you can define filters.
  
  End of the note.
5. In the other columns, enter a short name (such as CC/PT) and a long name (such as Company Code/Product Type) for the portfolio hierarchy.
6. Save your entries. Select the portfolio hierarchy that you have created and choose the Structure level on the left-hand side.
7. Choose New Entries.
8. Select the characteristics at the level of which you would like to calculate Cash Flow at Risk. In the Sort column, specify the sequence of the characteristics in the porfolio hierarchy:
  
  Characteristic
  
  Sort
  
  Company Code
  
  1
  
  Product Type
  
  2
9. Save your entries.
This portfolio hierarchy is used to calculate CFaR at the company code level and at the product type level.

End of the example.
See also: Portfolio Hierarchy and Editing Portfolio Hierarchies

Characteristic	Sort
Company Code	1
Product Type	2

Define Key Figures and Evaluation Procedure

In the application menu for Treasury and Risk Management under Start of the navigation path Market Risk Analyzer Next navigation step Evaluation Control Results Database Define Key Figures and Evaluation Procedures End of the navigation path (transaction AFWKF_RA), you need to make the following settings:

Define CFaR Key Figures

Enter a name for your key figure with a maximum of eight characters and choose Create.
Select a CFaR key figure category (RACFARS CFaR from Simulation or RACFARC CFaR by Variance/Covariance).
On the next screen, you define the key figures that you require. To be able to calculate the desired final result key figures, certain single record key figures are required.
- For the calculation of the CFaR final result key figure for the key figure category RACFARC CFaR by Variance /Covariance, you need the basic key figure RABB as well as a key figure for each of the key figure categories RAB06 Cash Flow at Risk and RACFPOS Risk Factor Position.
- For the calculation of the CFaR final result key figure for the key figure category RACFARS CFaR from Simulation, you need the basic key figure RABB as well as a key figure for each of the key figure categories RAB06 Cash Flow at Risk, RACFPOS Risk Factor Position, and RACFPL CFaR P/L Distribution.
Note
You can also define a key figure for the key figure category RACFOCRY Cash Flow in Original Currency, which calculates in the original currency the expected cash flow for the time of the evaluation. For this, not only the basic key figure is required, but a key figure for the key figure category RAB05 General Cash Flow is also required. (Note: The key figure categories RAB06 and RAB05 are identical.) When defining key figures, you assign the evaluation type at the level of the basic key figure. When defining the key figure for the key figure category RAB05 General Cash Flow, also specify the evaluation currency and the maturity band.

End of the note.
- When defining key figures, you assign the evaluation type at the level of the basic key figure.
- When defining the key figure for the key figure category RAB06 Cash Flow at Risk, you assign the evaluation currency and the maturity band.
  This key figure represents the cash flow on which the CFaR calculation is based. Cash flow is calculated on the basis of the spot rates. The maturity band defines the periods.
- When defining key figures for the key figure category RACFPOS, assign a risk hierarchy.
  Further, specify how position calculation occurs. That is, you specify whether transactions are valued completely, or whether an approximation is made (delta, delta-gamma). The method that you choose influences the length of the runtime for the evaluation. An approximation can be used for linear instruments, which gives the same degree of accuracy but with shorter runtimes.
  
  The following options are available:
  - 01 Delta Positions
  - 02 Delta and Gamma Positions
  - 03 Full Evaluation
    "Full Valuation" gives accurate results, but can lead to long runtimes.
  Note
  For the Cash Flow at Risk category Variance/Covariance, only the settings "Delta Positions" and "Delta/Gamma Positions" are permitted.
  
  End of the note.
- When defining the key figure for the key figure category RACFPL CFaR P/L Distribution, you make the following settings:
  - Volatility Type
  - Correlation Type
  - Calendar ID
  - Start Value
    Initial value for the generation of random numbers.
    
    If you specify a value, evaluations that are started with identical input parameters lead to the same result.
    If you do not specify a value, the start value for the random number generator itself is chosen randomly, and different evaluations with identical input parameters lead to different results.
  - Simulation Category
    You can select the following calculation methods for generating normally distributed random numbers:
    
    01 Structurized Monte Carlo with Box-Muller Alg. for Gen. NDRN
    02 Structurized Monte Carlo with Tree Method for Gen. NDRN
    03 Structurized Monte Carlo with Strata-Gems Alg. for Gen. NDRN
  - Simulation Runs
    This is the number of simulation runs (random walks) for the Monte Carlo simulation.
    
    Note
    A higher number of simulations leads to increased accuracy of the result, but also to a longer runtime of the simulation.
    
    End of the note.
  - Time Grid Method
    The time grid method is one of the methods used for creating a random walk time grid.
    
    The following options are available:
    
    Increment by Fixed Number of Days: Each step of the random walk covers the same number of working days (depending on the calendar assigned). The number of days is specified in the "Step Size" field.
    Use Maturity Band Key Dates as Time Grid: One random walk step is created for each period of the maturity band that is used in the evaluation run.
    In this case, the Step Size field is irrelevant because the length of the steps is variable and depends on the maturity band.
    
    Dependencies:
    
    The smaller the step size you choose, the more realistic the random walk you obtain, but also the longer the program runtime because more steps have to be created. Conversely, using a larger step size or selecting the "Maturity Band" setting leads to a more coarse random walk but improved performance.
  - Increment
    The number of working days per step of a random walk.
    
    Dependencies:
    
    This setting is only relevant if you choose the time grid method Increment by Fixed Number of Days. The smaller the step size you choose, the more realistic the random walk you obtain, but also the longer the program runtime because more steps have to be created. Conversely, using a larger step size leads to a more coarse random walk but improved performance.
  Here, you make the settings for generating the random walks for the spot rates, which form the basis for calculating the simulated cash flows. These simulated cash flows then form the basis for the P/L distribution. A single profit or loss is the difference between the simulated cash flow and the reference cash flow.
- When defining the final result key figure for the key figure category RACFARS CFaR from Simulation, also specify the confidence level and the CFaR method. In so doing, you specify how CFaR is calculated on the basis of the P/L distribution.
  - The confidence level specifies the probability (in percent) that the deviation of the actual future cash flow from the planned cash flow will not exceed Cash Flow at Risk.
  - The CFaR method controls how Cash Flow at Risk is calculated based on a simulated profit and loss distribution. The following settings are available:
    
    CFaR Determination Based on Profit and Loss
    The profits and losses are sorted by amount and valuated according to the confidence level.
    
    CFaR Determination Based on Symmetrical P+L Distribution
    Before counting, the profit and loss distribution is made symmetrical by including an additional entry with the opposite sign for each existing entry.
    
    CFaR Determination Based on Normal Distribution Assumption
    The standard deviation of the profits and losses is calculated, and CFaR is determined based on the standard deviation and the confidence level.
- When defining the final result key figure for the key figure category RACFARC CFaR by Variance/Covariance, you make the following settings for calculating CFaR based on the delta positions or delta-gamma positions of the risk factors and based on the covariance matrix:
  - Volatility Type
  - Correlation Type
  - Calendar ID
  - Confidence Level
    The confidence level specifies the probability (in percent) that the deviation of the actual future cash flow from the planned cash flow will not exceed Cash Flow at Risk.

Note Note

If you want to define only one single record procedure and one final result procedure for your CFaR key figures, ensure that you create only one CFaR key figure hierarchy when defining your CFaR key figures. This is because you can assign to one single record procedure only the key figures of a key figure hierarchy. A key figure hierarchy comprises all key figures for a basic key figure.

Examples of Key Figure Hierarchies

Key Figure for Key Figure Category RABB	Key Figure for Key Figure Category RAB06	Key Figure for Key Figure Category RACFPOS	Key Figure for Key Figure Category RACFPL	Final Result Key Figure
Example 1
BKCFAR	CFAR	CFARRP	CFARPL	CFAR_SIM
BKCFAR	CFAR	CFARRP		CFAR_VAR
Example 2
BKCFAR1	CFAR2	CFARRP2	CFARPL2	CFAR_SIM_2
BKCFAR1	CFAR3	CFARRP3		CFAR_VAR_2

End of the note.

Define Single Record Procedure and Final Result Procedure
1. Enter an ID (with a maximum of ten characters) for the single record procedure and choose Create.
2. Enter a description for the single record procedure.
3. Enter a filter.
  The filter defines which financial objects are evaluated.
4. The Real-Time Update upon Change of a Deal indicator is not relevant for CFaR key figures.
5. Enter a key and a description for the final result procedure and assign the single record procedure.
  Assign a portfolio hierarchy.
6. Save your entries.
7. Assign key figures to the single record procedure.
  All nonassigned key figures are displayed.
  
  Choose the first key figure. Then assign the other key figures that have not yet been assigned.
  
  Note
  You can only assign key figures belonging to the same key figure hierarchy (key figures of one basic key figure).
  
  End of the note.
8. Assign the key figures for the final result procedure.
9. Save your entries.
Define Initial Layout
The CFaR key figures are displayed in the Analyzer Information System using an initial layout that you define by specifying the sequence in which the key figures calculated are displayed. For this, you use the new areas Cash Flow at Risk; Maturity Band and Cash Flow at Risk; Risk Hierarchy in the function "Define Initial Layout" (transaction S_KFM_86000129).
In the function Define Formulas for AIS (transaction AIS_FORMULA_DEF), you also have the option of using the calculated key figures as the basis for defining your own key figures, which are then also displayed in the Analyzer Information System (AIS).

Features

If you want to display the AIS, you need to perform the following steps:

Update Market Data
Determine Single Records (transaction RAEP1)
Start this transaction to calculate the CFaR single record key figures.
Determine Final Results (transaction RAEP2)
Start this transaction to calculate the CFaR final result key figures.

See also: Evaluations Using the Results Database
Display CFaR Key Figures in the AIS (transaction AIS_STDREP)
Enter the portfolio hierarchy, a particular portfolio hierarchy node if applicable, the key date, and the initial layout. The List Viewer (ALV) is used to display the results. If you have created display variants for the List Viewer, you can enter them in the ALV Layout of the Analyzer Information System.

Execute the program.

In the upper part of the screen, the key figures are aggregated over all periods and risk factors for each node of the portfolio hierarchy. By selecting a node, you display in the lower part of the screen the cash flows and Cash Flow at Risk for each period of that selected node. By selecting a specific period, you display Cash Flow at Risk of the period for each risk factor (= currency).

You can use the functions of the Analyzer Information System to display the single records, the calculation base data, and so on.

See also: Analyzer Information System