Risk Analytics: From Concept to Deployment (World Scientific Financial Data Analytics)

243 Pages·2021·7.142 MB·English

by  Edward H K Ng

1122332266__99778899881111223388770033__ttpp..iinndddd 11 66//88//2211 88::3311 AAMM
World Scientific Series on Financial Data Analytics
Print ISSN: 2737-5943
Online ISSN: 2737-5951
Series Editor: Lim Kian Guan (Singapore Management University, Singapore)
Published

Vol. 1 Risk Analytics: From Concept to Deployment
by Edward H K Ng
BBaallaassuubbrraammaanniiaann -- 1122332266 -- RRiisskk AAnnaallyyttiiccss..iinndddd 11 2200//99//22002211 22::0044::3355 ppmm
1122332266__99778899881111223388770033__ttpp..iinndddd 22 66//88//2211 88::3311 AAMM
Published by
World Scientific Publishing Co. Pte. Ltd.
5 Toh Tuck Link, Singapore 596224
USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601
UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE
Library of Congress Cataloging-in-Publication Data
Names: Ng, Edward H. K., author.
Title: Risk analytics : from concept to deployment / Edward H.K. Ng,
Singapore Management University, Singapore.
Description: New Jersey : World Scientific, [2022] | Series: World Scientific series on
financial data analytics ; vol. 1 | Includes index.
Identifiers: LCCN 2021038308 | ISBN 9789811238703 (hardcover) |
ISBN 9789811239069 (ebook) | ISBN 9789811239076 (ebook other)
Subjects: LCSH: Financial risk management. | Risk assessment--Mathematical models. |
Risk assessment--Data processing.
Classification: LCC HD61 .N535 2022 | DDC 658.15/5--dc23
LC record available at https://lccn.loc.gov/2021038308

British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Copyright © 2022 by World Scientific Publishing Co. Pte. Ltd.
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
electronic or mechanical, including photocopying, recording or any information storage and retrieval
system now known or to be invented, without written permission from the publisher.
For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance
Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy
is not required from the publisher.
For any available supplementary material, please visit
https://www.worldscientific.com/worldscibooks/10.1142/12326#t=suppl
Desk Editors: Balasubramanian Shanmugam/Lum Pui Yee
Typeset by Stallion Press
Email: [email protected]
Printed in Singapore
BBaallaassuubbrraammaanniiaann -- 1122332266 -- RRiisskk AAnnaallyyttiiccss..iinndddd 22 2277//88//22002211 1100::3377::2288 aamm
6"×9" b4294 Risk Analytics: From Concept to Deployment
Foreword
Risk analytics is timely risk management with insights into key factors
and predictive capabilities harnessing hard data. Developing and employ-
ing advanced analytics together with the new generation of IT and digita-
lization will no doubt provide the winning edge in any financial firm’s
strategic roadmap. In banking, internal model performance and regulatory
compliance are in need of systematic data warehousing and effective inte-
gration of data flows across different departments and platforms on a real-
time basis. Basel III capital and other compliance requirements for banks
to manage their credit, operational, and market risks, necessitate the use
of complex statistical and mathematical models, especially when sophis-
ticated financial instruments exist in the bank’s trading and banking
books.
Banking business, data, and models are highly intertwined, and it is
timely that Dr. Edward Ng has written this book to shed light o n the sub-
ject. Edward brings both deep industry experience as well as sterling intel-
lectual rigor to the book. He has founded and runs Dren Analytics Pte Ltd,
a risk management consultancy firm, since 1999. He has also published
his research in the top finance academic journals. Edward is an interna-
tionally acclaimed risk advisory expert and has consulted for Asian cen-
tral banks in the Basel framework. He has also served as Berkeley-NUS
Risk Management Institute Training Advisor, and has been content devel-
oper, trainer and assessor for the Financial Industry Competency Standards,
a nationwide training programme for training and certification of finance
professionals in Singapore.
v
bb44229944__FFMM..iinndddd 55 99//1166//22002211 1111::0066::1122 AAMM
b4294 Risk Analytics: From Concept to Deployment 6"×9"
vi Risk Analytics: From Concept to Deployment
This book is written for risk management professionals, bankers,
compliance officers, as well as modelers and students who are interested
in risk analytics. Readers will no doubt benefit tremendously in under-
standing the framework and processes involved in data warehousing and
management, and the deployment of coding languages such as R, Python
and SQL. Beyond just theories and concepts, readers will learn how to
create solutions that can support planning and automated
decision-making.
Kian-Guan Lim
OUB Chair Professor of Quantitative Finance
Former Vice-Provost
Singapore Management University
bb44229944__FFMM..iinndddd 66 99//1166//22002211 1111::0066::1122 AAMM
6"×9" b4294 Risk Analytics: From Concept to Deployment
About the Author
Edward H K Ng, PhD in Finance, Edward founded
and runs Dren Analytics Pte Ltd which develops
risk management application solutions for and pro-
vides consulting services to banks according to the
Basel II framework. Prior to this, he has been a
tenured faculty of the NUS Business School for
nearly 20 years, teaching and researching in bank-
ing and financial markets, which he continues to
do as an adjunct finance faculty there and at the
Singapore Management University.
Dren Analytics specializes in helping banks develop a comprehensive
data management system as a necessary foundation to Basel II compliance
plus providing customizable application solutions for credit, market, inter-
est rate and liquidity risk management plus stress-testing. Through Dren
Analytics, Edward has developed a Risk Analytics System for the Thai
economy which includes bankruptcy correlations, trade credit statistics
and business impacts on credit risk. He has also completed a bank inspec-
tion manual under World Bank sponsorship for an Asian central bank to
implement Pillar II and trained the central bankers on this area. Besides
these, Dren Analytics has developed credit, operational and liquidity risk
management solutions and counts UOB Bank, OCBC Bank, Sing
Investment & Finance, Thanachart Bank, ACL Bank, Government Savings
Bank, State Bank of India and Bank Rakyat Indonesia among its clients.
At the personal level, Edward has conducted numerous seminars and
workshops on financial management, Basel II issues and credit risk
vii
bb44229944__FFMM..iinndddd 77 99//1166//22002211 1111::0066::1122 AAMM
b4294 Risk Analytics: From Concept to Deployment 6"×9"
viii Risk Analytics: From Concept to Deployment
modeling and has authored a book titled Managing Credit Data: Toward
Basel II. He has contributed his expertise to agencies, such as the United
Nations, Pacific Economic Cooperation Council, and ASEAN Business
Forum, and consulted for a range of clients, including Citibank,
Asian Development Bank, Marketing Institute of Singapore, Singapore
Computer Systems and SPSS.
As an academic, he has published in international journals, including
Journal of Finance, Global Finance Journal, Asia Pacific Journal of
Management, and Banks and Bank Systems. He has also sat on the edito-
rial board of several journals and conducted executive training in both
English and Chinese for bankers from Singapore, Malaysia, Thailand,
Indonesia, Vietnam, Cambodia, Laos and China. Edward served as
Berkeley-NUS Risk Management Institute Training Advisor, content
developer, trainer and assessor for the Financial Industry Competency
Standards, a nationwide training program for training and certification of
finance professionals in Singapore. He is also trained as an international
arbitrator and had been a Fellow of the Singapore Institute of Arbitrators.
He served as Consultant Risk Specialist to Bank Negara Indonesia for the
comprehensive development of risk management systems, processes and
governance.
bb44229944__FFMM..iinndddd 88 99//1166//22002211 1111::0066::1122 AAMM
6"×9" b4294 Risk Analytics: From Concept to Deployment
Contents
Foreword v
About the Author vii
Chapter 1 Introduction 1
Chapter 2 Risk Typology and Data Implications 7
2.1. Data Needed 10
2.2. Data Stewardship 12
2.3. Deployment for Use 13
Chapter 3 Risk Analytics Landscape 15
3.1. Software and Solutions 15
3.1.1. Request for Proposal (RFP ) 17
3.1.2. Terms of Reference (TOR) 17
3.1.3. Proof of Concept (POC ) 19
3.1.4. System Integration Test (SIT ) 20
3.1.5. User Acceptance Test (UAT ) 21
3.2. Data Table and Data Type 21
3.3. Modeling 24
3.3.1. Business understanding 26
3.3.2. Data understanding 28
3.3.3. Data preparation 30
3.3.4. Modeling 31
3.3.5. Evaluation 33
3.3.6. Deployment 37
ix
bb44229944__FFMM..iinndddd 99 99//1166//22002211 1111::0066::1122 AAMM