Portfolio Management


Portfolio management is a set of strategic decisions that guide the investor, by selecting the best available financial assets, which will provide the expected rate of return for any given degree of risk, as well as mitigate (reduce) the risk.

The objectives of portfolio management are applicable to all financial portfolios:

  • Investment safety or minimization of risk
  • Stability of returns
  • Capital growth
  • Liquidity
  • Diversification

These objectives, if taken into account, result in a proper analytical approach towards portfolio growth. The following steps are applicable:

  • Asset allocation/Portfolio structuring
  • Portfolio evaluation
  • Scenarios and stress testing
  • Portfolio optimization module
  • Limit and compliance module
  • Performance calculation module
  • Basic sensitivities – durations, greeks, historical and implied volatilities, etc.
  • Base point value, Key rate
  • Hedging by BPV, Beta
  • Scenario projection – portfolio theoretical value development over time
Scenarios/stress testing

The module provides means to define different strategies for scenario changes in the market environment, in order to compose real world scenarios, such as crisis, growth, market shock, issuer defaults, refinancing costs, etc.

Portfolio optimization

Performs the optimization of risk and return, and presents proposals for portfolio restructuring in the presence of different scenarios, user defined restrictions and preferences. For example, investments in EUR > 30% and investments in USD < 40%.

Limit and compliance module

This model enables the grouping of positions according to different parameters and compares specific aggregates against target limits. It allows continuous tracking of the portfolio’s current state and alerts in case of broken limits.
Limit example: all positions in EUR must have a present value that is below 5 Mio EUR and the three biggest positions in USD should not allocate more than 30% of the total investments in USD.

Performance calculation module

Position and portfolio performance is calculated for a specific historical period and includes transactions. The performance is separated into realized, non-realized and FX-effects, which are aggregated along the sub-portfolio hierarchy. In addition, performance can be tracked against multi-level benchmark. The following components are included in the calculation:

Portfolio management process flow

  • Setting of investment objectives: time horizon, risk tolerance, income needs, liquidity requirements.
  • Development of an asset allocation strategy. The portfolio is a set of specific types of objects (e.g. Positions) that can be defined using predefined lists, filters or both. Within a portfolio, hierarchical dependencies between sub-portfolios can be defined, using predefined structures, based on the portfolio content (e.g. according to currencies in portfolio). Lists, Filters and Structures define the portfolio’s Asset Allocation. Models working with Portfolios, Lists, Filters, and Structures require the registration of these objects in a catalogue, according to the object type.
  • Evaluation of the selected investment schema.
  • Reporting locally in different formats (Excel, Crystal report, OLAP reporting and QlikView)
  • Ongoing portfolio review process, answering questions on whether the portfolio meets the selected set of objectives or performs consistently with predefined expectations. A portfolio’s investment objectives can be reviewed and modified as needed.


The software platform is intended to create and interpret program scripts (models). Depending on the context – defined by user, entity center and actual module – the system can load a model and create, calculate and save model sessions. A session’s function is to input data, read data from the database, calculate the session and save model results into the database. More than one session can be created for each item and model. To be able to work with models and sessions, the user must have a role that allows him to access the model and gives him rights to perform operations on model sessions. Roles and rights are assigned to the user by the administrator within folder Register of roles. Each session has a time stamp and a unique identifier, allowing the historic recording of confirmed and non-confirmed session data.

Portfolio management features include:

Asset allocation/portfolio structuring
  • Multi-level portfolio (re)structuring based on calculation results and position properties.
  • Allocation of positions, for example, by currencies and maturity bands.
  • Static and dynamic portfolio structuring.
Portfolio evaluations
  • All evaluations are performed according to a selected market scenario.
  • Results are aggregated on every level of the portfolio structure.
  • Multiple market scenarios are applicable and can be compared at all levels.
The calculated results and figures include:
  • Market and theoretical values, Profit/Loss
  • Market and Paid Prices at the beginning and the end of a historical period
  • Accrued interests at the beginning and the end of a historical period
  • Capital and interest rate payments within a historical period
  • Fees and Taxes within a historical period
  • Profit/Loss calculation
  • Benchmark tracking

The portfolio management functionality is ensured via the following modules and models:

Module List Models and Functionality
  • Portfolio management:
  • Asset allocation & portfolio structuring
  • Portfolio evaluation
  • Scenarios & stress testing
  • Portfolio optimization
  • Limit and compliance
  • Catalogue and definition of financial objects
  • Clients and client attributes
  • Instruments, positions and collaterals
  • Portfolios, filters and lists
  • Static and dynamic sub-portfolio structures (asset allocation)
  • Packages and Batches
  • Report templates
2 Report generation
  • Crystal reports
  • Standard reporting
  • COREP reporting
  • OLAP reporting
  • Export to MS Office (Excel, Word, Power Point, ...)
3 System features
  • Models and sessions, Session Management
  • Settings in Risk Framework
  • Nomenclatures in Risk Framework
  • Authentication, authorization and licenses
  • Logging system, Audit system
  • Error and warning report system
4 Registering support
  • Multi-entity and bank/business hierarchy
  • Roles, including access and object rights
  • Users, including passwords, validity and assignment of roles to users

Future Development

The user-friendly interface and the high-performance engines of our risk management system enable:

  • Easy and quick calculation results
  • Results displayed in browsers and charts
  • Database data reports, using various report forms generated by the Crystal Reporter
  • XML-based COREP reports and session protocols

Existing models of the risk management system can be easily customized and its functionalities can be enhanced in a flexible way, by adding new model scripts.

The implementation of the risk management system is based on a well-known artificial intelligence tool - the expert system shell with inference engine. Scripts are used to model the Windows GUI, via model variables, and to define the business logic, expressed in rules. Models are interpreted by the expert system and the inference engine runs rules on the model variables. Changes in models are handled online, meaning that the changes are activated immediately after editing and reloading the model. Integration of additional modules is already finished:

  • New financial instruments: implementation of Certificates and Knock out products
  • Hedge Accounting and Balance Accounting modules acc. to IFRS9
  • Inheritance of data between hierarchic entities (branches, business centers, etc.)
  • Time series prediction based on Neuronal Networks
  • Tracking error and contributions
  • Liquidity Ratios (LCR, NSFR)
  • Back testing

Interfaces and Connectors

Module “Risk Management” is part of the entire risk management system. The module inherits the features of Risk Framework Interfaces and Connectors and Risk Engine Interfaces and Connectors.


1. Can Market, Cashflow and Liquidity scenarios be used at the same time?
Market Scenarios change market factors that influence the portfolio evaluation, while Cashflow and Liquidity scenarios change the capital structure of positions, based on synthetic plans or position expectations. Both scenarios are independent and can be used at the same time.
2. Which data is needed to perform portfolio optimization?
Portfolio optimization is a Markowitz optimization, based on historic simulations. Daily historic Value at Risk (VaR) and daily performance are obtained from historical time series of positions in the optimized portfolio, for a selected historical period, e.g., for the last year. Historical time series for prices are needed for every position. If historical data is missing, calculated theoretical prices, based on time series for historical market factors, are applied.
3. How are Limit and Compliance check defined?
A specific language is used, allowing the definition of sub-portfolios, aggregation of expressions, and comparison of operators. The customer can define limits and compliance checks via specific interactive GUI. For example, the volume of all positions in USD has to be 40% larger than the volume of the first 10 positions in CHF.