Case Study: Ericsson’s New Modelling Solution Improves Risk Management

Ericsson is a global provider of telecommunications equipment and services to mobile and fixed network operators. The company’s network equipment is used by over 1,000 networks in more than 180 countries – more than 40% of the world’s mobile traffic passes through its networks. Ericsson’s centralised treasury in Stockholm is responsible for cash, insurance and risk management, working with regional treasury centres and group companies worldwide.

On a daily basis, Ericsson’s central treasury calculates and tracks value-at-risk (VaR) for its financial instrument portfolios. Until recently, Ericsson was using a proprietary overnight batch process to estimate the co-variance matrix for the VaR calculation. But the application was proving inflexible. It took seven hours to run and could not be easily re-configured and re-run if errors came to light. Technical support for the proprietary software was also lacking.

Tomas Lourie, treasury risk manager at Ericsson, explains: “It was clearly time for a fresh start to remove all these obstacles.”

So the challenge was to find a flexible and transparent solution. The requirement was to speed up the process of extracting prices from a Wallstreet Suite and performing the co-variance matrix estimation. The objective was to give treasury more confidence in its ability to rapidly perform financial modelling at the point of need.

The Treasury Solution

Ericsson was already a long-term and satisfied user of SkySparc’s Transaction HUB solution for straight-through processing (STP) of transactions made on bank electronic dealing platforms into the Wallstreet Suite.

“We appreciated SkySparc solutions’ ability to integrate seamlessly with Wallstreet Suite and for its quality client support,” says Lourie. “SkyReport seemed like a great fit for our new requirement.”

SkyReport is a processing platform enabling fast financial systems and data integration within a client’s treasury environment. It is tightly aligned with Wallstreet Suite. As a result, SkyReport is an efficient platform for developing tailored solutions, without the lengthy timescales and costs usually associated with bespoke development.

In this example, Ericsson needed to extract prices from Wallstreet Suite into a data matrix file, run the co-variance matrix estimation analysis and feed the results back to Wallstreet Suite. SkySparc built the calculation module required for this and tailored SkyReport to manage the data, perform the analysis and import the calculations back to the Wallstreet Suite.

Today Ericsson’s treasury has a process for calculating the VaR co-variance matrix with the speed, flexibility and transparency it needs to be confident it can always respond to the business environment.

With SkyReport, price extraction and co-variance matrix calculations for 500,000 correlations and subsequent integration back into the database now takes less than 10 minutes, whereas the old solution took seven hours. This massive efficiency improvement gives the risk management team far greater flexibility.

“We can now easily re-run the process if we find some missing or incorrect prices,” addss Lourie. “Using SkyReport we can correct and re-calculate co-variance in no time. In addition we are not dependent on overnight batch processing, which is a big advantage.”

SkyReport also gives Ericsson’s risk management team greater visibility of what data is being used and how the calculations are performed. For example, they can adjust initial parameters before each calculation process begins, such as the date range from which the solution will fetch historic data.

“We can change things very easily, if required,” continues Lourie. “So we now feel comfortable that we have total control of this important risk management process. Given the responsiveness we have seen from SkySparc during the implementation, we’re confident that any future modifications or modelling requirements can also be accommodated within SkyReport.”

The new application was delivered within the required timeframes and budget by SkySparc’s consultants. The strong combination of systems development, quantitative statistics and financial markets expertise in the SkySparc team proved a winning combination for this project.

 

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