We speak to Assad Bouayoun, Director, XVA Senior Quant at Scotiabank ahead of the 6th Annual Risk EMEA Summit to gain his professional insights on valuation adjustments.
Assad, can you tell the Risk Insight’s readers about yourself and your professional experiences?
I am a senior XVA Quantitative Analyst with more than 15 years of experience in leading banks. Prior to joining Scotiabank’s XVA Quant team I designed industry-standard hedging and pricing systems; first in equity derivatives, then in credit derivatives before moving into Model Validation and Model Development in XVA at various financial institutions.
I have an extensive background in developing enterprise-wide analytics used to improve the financial management of derivative portfolios, especially large scale hybrid Monte-Carlo and Exposure computation.
I hold an MSc in Mathematical Trading and Finance from CASS business school and a Master’s in Applied Mathematics and Computer Science from Université de Technologie de Compiegne (France).
We are looking forward to your presentation at Risk EMEA 2017 where you will be addressing Valuation Adjustments. Why do you believe this is a key talking point at the Summit?
I think it is a key talking point for several reasons:
1. The fact that these value adjustments are firm-wide financial metrics means they give a fair picture not only of the counterparty and funding risk the Bank is taking, but also they give the means to manage these risks and reserve appropriately.
2. XVA theory can apply not only to derivative portfolios but also to any kind of company portfolio of projects. Think about a company specialised in petrol exploration. It has suppliers and customers which could default, with funding costs associated to debt and receivables. It also hedges any market dependant stream of revenues or spending.
As newer XVAs are added to the mix, what would be your advice on managing associated costs?
It is essential to have a good and consistent model with a solid implementation and a fast and powerful infrastructure. Each VA must be added consistently with the others and carefully integrated in the netting hierarchies (capital, funding and margining sets and aggregation rules are often different).
Clearly margining creates a new type of value adjustment, the MVA, but reduces the CVA at the same time. Having enough flexibility specification in the model around the netting agreement becomes important as it helps reduce MVA by finding optimal allocation of trades.
How do you see the role of the risk management professional changing over the next 6 – 12 months?
The future offers some exciting opportunities, most of them linked to some recent innovations in technologies (GPU based cloud computing) and in numerical method (AAD on GPU) increasing the compute power while decreasing its cost.
Consequences are multiples. I see more data obtained at a higher frequency available to decision makers. This will in turn enable them to solve new types of problems: XVA and Capital allocation optimisation for example. The Modern Risk Manager will then have to adapt by being more specialised and also by being more IT literate. Feeling comfortable in a big and fast data environment by being able to prototype new data analysis functions that can help identify and quantify risks in any part of the business, would be part of the job.