Value-at-Risk (VaR) for a large energy company - Today’s Solution, Tomorrow’s Foundation
One of the largest energy companies in the world recently partnered with Excelian to deliver a daily fully diversified Value-at-Risk. The company provides innovative integrated energy solutions and operates primarily from London, Singapore and Houston and conduct operations in European and US gas, LNG (Liquefied Natural Gas), European electricity and carbon, crude and refined products, coal and FX markets.
To better support control of a rapidly expanding product offering and trading activity, the company decided to invest in new strategic risk management technology. The initial focus of the project was to move to a globally consolidated fully diversified VaR model, to release trading capital. Further market and credit risk metrics such as EaR (Earnings at Risk), PFE (Potential Future Exposure), CMaR (Cash Margin at Risk) and CVaR (Credit Value at Risk) were to follow.
Excelian’s Business Manager Kerry Brisbane said “This had to be a transformation project that would enable the company to move forward faster. From an IT perspective, we needed to deliver significant change to their business. The company had a fundamental challenge on their hands and they needed a vendor who not only knew the market but also the technologies involved.”
The company initially selected Excelian to define the first phase of this programme. Excelian was selected from a shortlist of vendors as we demonstrated deep and broad capability in risk management and the energy markets, coupled with flexibility in our approach.
The initial engagement was a fixed price deliverable to set out the business case, solution and project plan for migrating from the incumbent VaR process to a new strategic architecture. The legacy VaR system comprised disparate end-user-technology which was used to manually compile a delta-normal VaR. A new, fully diversified Monte-Carlo VaR model with full revaluation would replace this and be hosted on a scalable next generation distributed risk platform.
The plan was approved by the company and the project moved into its build phase.
For the delivery, Excelian led the analysis and augmented the existing development team. For the latter, Excelian was delegated the specific responsibility to deliver a confederated data layer for exposures, trades and market data together with the user interface and reporting modules.
The development process at the company is Agile; so the project was organised into six sprints of two weeks, each with broad goals focused on particular products. A seventh sprint was reserved for contingency. There was then a short bedding down phase where the legacy and strategic systems were run in parallel.
The VaR reporting was successfully delivered within the original timeframe and Excelian were retained to support early “go live” and to define Phase 2 of the programme, which was to implement further risk metrics.
The company sees the overall success of the project as a testament to the importance of integration experience, business knowledge and the right approach to client-vendor relationships.
“Excelian was extremely flexible and accommodating and ultimately formed a crucial part of the overall partnership that delivered this solution” – Programme Manager for the company.
Head of Commodities at Excelian, Marc Maynard was also in agreement, “Service is often measured in terms of customer satisfaction. Critical to our success is our ability to deliver what we promise; to build and sustain close customer relationships and ensure delivery of innovative solutions.”