In this Technical Note - following the Basel Committee's recommendations - we present our methodology for backtesting the Counterparty Credit Risk models in MSCI's RiskManager product. We test risk factor simulation models and our margining framework separately by comparing the realized risk factor values and the netted exposures to their forecast distributions at multiple horizons. We use the Cram'r-von Mises test to check if the forecasts were statistically correct during the observation...

Starting in 2012, MSCI Research began exploring the impact of macroeconomic events on asset valuation and strategic asset allocation. The white papers summarized in this Research Spotlight provide the core findings in a continuing series, and are the basis of our growing suite of ‘macro models.’ For each paper you will find the full title, the credited authors, a short abstract, and a quick hyperlink to the full publication in our Research Library.

This paper demonstrates how BarraOne's Performance Analytics, the correlated stress test engine, and the risk forecasting model can all be integrated to support the investment decision process. Using a case study, we follow the decisions of a hypothetical bond portfolio manager before and after the September 17, 2013 FOMC meeting where the Fed decided to delay tapering their bond-buying program. We leverage the MSCI Macroeconomic Model to forecast the outcome of the decision on tapering, then...

This paper demonstrates how BarraOne's Performance Analytics, the correlated stress test engine, and the risk forecasting model can all be integrated to support the investment decision process. Using a case study, we follow the decisions of a hypothetical bond portfolio manager before and after the September 17, 2013 FOMC meeting where the Fed decided to delay tapering their bond-buying program. We leverage the MSCI Macroeconomic Model to forecast the outcome of the decision on tapering, then...

In this Technical Note, we present the enhanced Asset-Based Rule and refit the model using the latest available MSCI equity index data. This enhancement offers an improved estimation methodology of the model as well as increasing the coverage to a wider range of markets.

In the CreditMetrics framework, the value of a pool of loans at the risk horizon is determined by the state of its driving market factors and the idiosyncratic factors of the individual loans.  However, if the loan pool consists of hundreds of loans, most of the risk from idiosyncratic factors is diversified away, leaving the horizon values driven mostly by market factors.  While this behavior is intuitive for standalone pools, it has an undesirable side effect for portfolios...

Since the adoption of the Basel II standards, banks have been subject to minimum capital requirements based on the Internal-Ratings Based (IRB) formula, which is based on a simple credit portfolio model that accounts for some, but not all, possible sources of portfolio risk. To address the additional sources of risk, banks work with richer models and supervisors demand additional capital add-ons under "Pillar 2" of the BIS capital standards, which has created the need for a...

The Federal Reserve recently kept its quantitative easing policy in place for now, but as the economy improves, the Fed will likely taper its stimulus program.  When this tapering begins, how will investors prepare for this unprecedented event?  In this paper, we demonstrate the MSCI Macroeconomic Model, exploring how economic conditions might change enough to motivate the Fed to commence tapering; we combine this analysis with the Barra Integrated Model to explore how economic...

RiskManager uses the Andrew Davidson & Company (AD&Co) VECTORS prepayment model for mortgage-backed securities; MSCI offers the AD&Co recommended model settings, and releases a Technical Note as the recommendations change.  On Thursday, December 6, 2012, MSCI updated the tuning files associated with the residential mortgage-backed security (RMBS) prepayment models in the RiskServer production environment.  This Technical Note summarizes the changes in collateral behavior...