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Unified Financial Analysis Risk & Finance Lab

Unified Financial Analysis Risk & Finance Lab. Chapters 1&2 Willi Brammertz / Ioannis Akkizidis. Table of Content. The Problem. The Base Model. Unified Financial Analysis. Practice and Theory. The Reconciliation Problem. BANK. Cost Ratio. Cost Saving Potential 70%. Analysis Level

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Unified Financial Analysis Risk & Finance Lab

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  1. Unified Financial Analysis Risk & Finance Lab Chapters 1&2 Willi Brammertz / Ioannis Akkizidis

  2. Table of Content The Problem The Base Model Unified Financial Analysis Practice and Theory

  3. The ReconciliationProblem BANK Cost Ratio Cost Saving Potential 70% Analysis Level Financial Analysis i = f(E[Cash-Flows],,,) Expected CFL’s under forecasted conditions 60+% RISK FINANCE REGULATION Transaction Processing Level Real exchanged CFL’s Under current conditions -40%

  4. Financial contracts today Endre vullumsandio dion endipsummy nos dolobore vel ut alis amet autem dionseq uismodigna feumsan dionse dolor ullandre magna feuipsummy nullum ad tin …. Bank shall pay the sum of __________ USD on __________ (date) to ______ (obligor). Obligor will pay an interest of ____ % on a semi-annual basis and repay the full amount in ____ years. Date, Signature Judex non calculate 1000 2013.01.01 10 Mr. Smith 3

  5. The real AgreementContracts and Algorithms

  6. Another Agreement

  7. Contract TermsParameters of Functions Endre vullumsandio dion endipsummy nos dolobore vel ut alis amet autem dionseq uismodigna feumsan dionse dolor ullandre magna feuipsummy nullum ad tin …. Bank shall pay the sum of __________ USD on __________ (date) to ______ (obligor). Obligor will pay an interest of ____ % on a semi-annual basis and repay the full amount in ____ years. Date, Signature 1000 2013.01.01 10 Mr. Smith 3

  8. Effect of CentralData Stores Analysis Level Value Balance Sheet Add Risk Factors „Reinvent“ Algorithms ~ Data Store Data WITHOUT Algorithms …. …. -cfln -cfl1 -cfl2 +cfln +cfl2 +cfl1 t t Expected Cash-Flows Expected Cash-Flows Transaction Processing Data AND Algorithms

  9. ACTUS and Data Stores Analysis Results Add Risk Factors = CFL-Algorithms Data and Algorithms STANDARDIZED Data Store …. …. -cfln -cfl2 -cfl1 +cfln +cfl2 +cfl1 t t = Expected Cash-Flows Expected Cash-Flows Data and Algorithms UNSTANDARDIZED

  10. ACTUSFinTech Architecture Analysis Results Add Risk Factors = Data and Algorithms ACTUS STANDARD

  11. Smart ContractAnalogy with DNA DATA ALGORITHMS

  12. ACTUSAlgorithmic Contract Types THE SMART FINANCIAL CONTRACT STANDARD

  13. Fra Luca PacioliThe Root of the Problem in Finance Summa de Arithmetica, Geometria, Proportioni et Proportionalità, 1494

  14. Value at the TopLiquidity Last V I L

  15. The Appropriate View L V I

  16. Table of Content The Problem The Base Model Unified Financial Analysis Practice and Theory

  17. The Model RiskFactors Inputs Credit Risk Factors Market Risk Factors Behavior Risk Factors Contract Inputs Financial Contracts (Data + Algorithms) Contract Events e1 e2 e3 en-1 en …. t Expected Cash-Flows cfl1 cfl2 cfln …. t Analytical Results Liquidity Income Value

  18. Alternative Representation

  19. Table of Content The Problem The Base Model Unified Financial Analysis Practice and Theory

  20. Ariadne SoftwareDEMO DYNAMIC ANALYSIS STATIC ANALYSIS

  21. Static (and Historic) AnalysisOverview Market rate NPV Assets Existing Contracts Time Liabilities t0 Volatility in t0 ()

  22. Static AnalysisReports • Canonical (Historization) • Nominal Value • Fair Value / Mark to Model • Book Value 1 (e.g. IFRS) • Book Value 2 (e.g. LGAAP) • Stress Scenarios • Monte Carlo (Fair Value) • Liquidity Gap • Rate Reset Gap • Pivot Table • Regulatory ad hoc Reporting

  23. Ariadne SoftwareDEMO DYNAMIC ANALYSIS STATIC ANALYSIS

  24. Dynamic AnalysisOverview ... Yield Time to Maturity Yield curve t1 Yield curve t2 Yield curve t0 P&L Assets Volume Contract Characteristics Market Conditions Existing Contracts Time Liabilities t0 Spread

  25. Natural Time Markets Markets Behavior Counter-parties Behavior Counter-parties Contracts Contracts Dynamic Simulation e1 e2 e3 en Financialevents Investment Horizon … Liquidity Value Income Sensitivity L@R E@R V@R Risk

  26. Ariadne SoftwareUser Experience

  27. Table of Content The Problem The Base Model Unified Financial Analysis Practice and Theory

  28. Unified Financial Analysis – The missing links of finance • Part I: Introduction • Part II: Input Elements • Financial Contracts • Market Risk Factors • Counterparties • Behavior • (Cost) • Part III: Analysis Elements (Static Analysis) • Financial Events and Liquidity • Value, Income and FTP • Sensitivity • Risk • (Operational Risk)

  29. Unified Financial Analysis – The missing links of finance Volume Contract Characteristics Market Conditions • Part IV: Dynamic Analysis • General Mechanisms • Banks • (Non-Life Insurance) • (Life Insurance) • (Non-Financials) • Part V: Outlook and conclusions • Financial Laboratory (Completness of the System) • Towards a Unified Financial Language t0

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