Swap API Lib to Compute DCO's Swap Values, Basel VaR and SRISK

1. Why swap API lib (SAL)?

The size of OTC swaps was estimated at 408 trillion USD by CFTC snapshot on 2/8/2013, about 26 times of 2012 U.S. GDP (15.7 trillion). The counterparty default risks are likely to cause another epic financial crisis (similar to the one in 2008) if not addressed timely and properly. In order to reduce the counterparty risks, Dodd-Frank laws require swap dealers to use DCOs to clear OTC (over the counter) swaps. Implementing the DCO-based swap clearing, electronic reporting and CFTC/SEC risk management for DCOs are very challenging according to the Dodd-Frank schedule. SAL provides an automated Cloud solution to calculate DCOs' credit risks and market risks for CFTC, SEC, Federal Reserve, and swap dealers. This will help enable and speed up the implementations of Dodd-Frank laws with advanced derivatives risk management software.

2. What is Yeswici Swap API Lib (SAL) and how is SAL used?

SAL is a collection of software APIs to calculate derivatives clearing organization (DCO)'s credit risk (by swap values) and market risk (by Basel VaR and SRISK). DCOs are financial institutions that manage counterparty risks of swap contracts.

SAL is designed to be used with RESTful SOA Web services in a Cloud architecture

3. Which banks are among CFTC registered swap dealers?


Bank of America NA
Bank of New York
Barclays Bank Plc
Citigroup Global Markets Inc.
Credit Suisse International
Deutsche Bank AG
Goldman Sachs & Co.
Goldman Sachs Financial Markets LP
ING Capital Markets LLC
Hongkong & Shanghai Banking Corp. Ltd.
Morgan Stanley & Co. LLC
Merrill Lynch Financial Markets Inc.
Nomura Global Financial Products Inc.
Wells Fargo Bank NA
Bank of Tokyo Mitsubishi UFJ Ltd.
HSBC Bank Plc
ING Capital Markets LLC

4. Which institutions are among CFTC-approved DCOs?

ICE, LCH, CME

5. How to calculate swap credit risk?


API name: swGetDCOSwapCreditRisk()
Purpose: the API takes an array of fixed cash flows, LIBOR rate, maturity times in year unit, discount factors etc. to compute fixed cash flows and floating cash flow, and returns the credit risk of the swap = (swapValue | swapValue > 0).
API names: swGetSwapValuePayFloatReceiveFix(), swGetSwapFixedBondValue(), swGetSwapFloatBondValue()
- The swapValue for paying float for fixed cash flow = fixBond - floatBond
- The swapValue for paying fixed for float cash flow = floatBond - fixBond

6. How to calculate market risk of swap portfolios?


API name: swGetDCOSwapValueAtRiskBaselStandard()
Description: The API calculates Basel market risk of a swap portfolio
Requirement: per Basel 1996, regulators require an institution's capital for market risk to be at least three times the 10-day 99% value at risk. This is the standard market risk requirement by World regulators.

7. How to calculate SRISK and why SAL contains incrementally new risk models?

Engle's SRISK = E(capital shortfall|crisis). See the whitepaper entitled "Building Advanced Swaps Risk Management Software to Assess DCOs' Credit and Market Risks"

8. What does swap API lib (SAL) data model entail?

Main tables:
risk_swap_creditrisk_input
risk_swap_dco
risk_swap_dco_creditrisk
risk_swap_dco_marketrisk
risk_swap_dco_srisk
risk_swap_dco_vola
risk_swap_dealers
risk_swap_type
risk_swap_zscore