Managing risk through collateral and liquidity modelling

Energy risk managers should familiarise themselves with collateral risk measures and know how to interpret them, as they can act as early warning signals for impending liquidity issues caused by the company’s hedging and trading activities. If properly aggregated and reported, this information can form the basis of a strategy to minimise the use of cash as collateral. The key is that managers must make use of this valuable information or otherwise run the risk of a significant credit event.

PA Consulting Group's (PA) Collateral and Liquidity Risk Model employs a delta-normal VaR technology at a pre-defined confidence level to perform collateral analytics. The user can enter in a sample set of trades, along with volatility and pricing information, correlation data, master agreement information and other details. PA's Collateral and Liquidity Risk Model then calculates expected and potential future collateral requirements for the sample portfolio and for each sample netting group.

The Collateral and Liquidity Risk Model is implemented in Access 2003™ and can be run using Office 2000™ or Office XP™.

To request a copy of the Collateral and Liquidity Risk Model, please review and agree to the associated terms and conditions by clicking here.  

To learn more about our energy risk and modelling capabilities, contact us now.