Smart analysis configuration: Choosing the right settings for faster ALM calculations

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Have you ever found yourself waiting hours for your Asset Liability Management (ALM) analysis to complete, wondering if there’s a faster, more efficient way to get the insights you need? In the fast-paced world of financial risk management, time is a critical resource. The choice of your ALM analysis methodology can be the difference between spending your day waiting or making timely, data-driven decisions.

The purpose of this post is to guide you through the different types of calculations you can perform in SAS ALM on Viya. We will explore the three main analysis types, Run-off, Static Balance, and Dynamic Growth, and provide a comprehensive framework for choosing the right approach for your specific needs. By the end of this post, you will have a clear understanding of how to optimize your ALM analysis for both performance and accuracy, enabling you to unlock the full potential of SAS ALM on Viya.

In this post, you will learn:

• The three main analysis types: Run-off, Static Balance, and Dynamic Growth.
• Practical strategies for optimizing performance and resource utilization.
• A decision framework to help you select the right analysis type for your business needs.

Why your choice of analysis type matters

The power and flexibility of SAS ALM on Viya mean that you have a wide range of analytical capabilities at your fingertips. However, with great power comes the need for careful consideration. The type of analysis you choose to run will have a significant impact on both the performance of the system and the business value of the results. Choosing an analysis type that is too complex for your needs can lead to unnecessarily long processing times and high resource consumption. Conversely, an analysis type that is too simplistic may not provide the depth of insight required for effective decision-making.

This is why understanding the different analysis types available in SAS ALM on Viya is so crucial. By matching the right analysis type to your specific business objective, you can strike the optimal balance between performance, accuracy, and business relevance. In the next section, we will take a deep dive into the three main analysis types, exploring their characteristics, use cases, and performance implications.

The three analysis types

Each method offers a different perspective on your balance sheet, and understanding their nuances is key to effective risk management.

1. Run-off Analysis: The "Let It Be" approach

Run-off analysis is the most straightforward of the three analysis types. It provides a view of your balance sheet as if you were to cease all new business activities and simply let your existing assets and liabilities run their course until maturity. This approach is akin to watching your current bank account slowly deplete without making any new deposits. The focus is solely on the cash flows generated by your existing portfolio.

In SAS ALM on Viya, a run-off analysis is configured by specifying that no new business should be generated. The system then calculates the contractual cash flows for all instruments in the portfolio, taking into account prepayments and other behavioral assumptions. The analysis continues until all instruments have matured or the analysis horizon is reached.

Performance Characteristics

Given its simplicity, run-off analysis is the fastest of the three analysis types. The system only needs to process the existing portfolio, without the computational overhead of generating new business or rollover transactions. This makes it an ideal choice when you need a quick assessment of your current risk position.

2. Static Balance Analysis: The "Steady State" method

Static balance analysis takes a step up in complexity from the run-off approach. It assumes that as existing assets and liabilities mature, they are replaced with new instruments of similar characteristics, thus maintaining a constant balance sheet size. This is like having a monthly budget that you stick to indefinitely; as you spend money, you replenish it to maintain the same overall balance.

A key concept in static balance analysis is the rollover horizon. This setting determines the period during which maturing instruments are replaced. When an instrument matures within the rollover horizon, the system generates a new instrument with the same notional value and repricing characteristics. The interest rate on the new instrument is determined by the prevailing market rates at the time of rollover, as defined by the scenario being run.

Rollover Horizon Optimization

The choice of rollover horizon is a critical performance lever. A longer rollover horizon will result in more calculations, as the system will need to generate more rollover transactions. It is important to choose a rollover horizon that is appropriate for your analysis objectives. For most standard risk reporting, a rollover horizon of 5 to 10 years is sufficient. Setting the horizon too far into the future can significantly increase calculation times with little to no added analytical value (as can bee seen in the graph below).

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Performance Characteristics

The performance of a static balance analysis is primarily driven by the length of the rollover horizon and the number of scenarios being run. By optimizing the rollover horizon and being selective with your scenarios, you can achieve a good balance between performance and analytical depth.

3. Dynamic Growth Analysis: The "Full Planning" approach

Dynamic growth analysis is the most sophisticated and comprehensive of the three analysis types. It allows you to model the evolution of your balance sheet over time, taking into account new business growth, changes in customer behavior, and the introduction of new products. This is akin to creating a detailed business plan that projects your financial position into the future.

The Business Evolution Plans (BEP)

The core of dynamic growth analysis in SAS ALM on Viya is the Business Evolution Plan (BEP). A BEP is a structured framework that allows you to define your growth projections for different segments of your portfolio. You can specify target variables such as Book Balance, Par Balance, or Market Value, and define how these variables will change over time. More information on how to create a BEP can be found in an earlier post here.

Performance Considerations

Given its complexity, dynamic growth analysis is the most resource-intensive of the three analysis types. The performance will depend on the number of segments in your BEP, the complexity of your growth projections, and the number of scenarios you are running. It is important to keep your BEPs as simple as possible while still meeting your business needs.

Performance Optimization Strategies

While SAS ALM on Viya is a high-performance platform, there are several strategies you can employ to further optimize your analysis and reduce processing times. By following these best practices, you can ensure that you are getting the most out of the platform without sacrificing analytical rigor.

• Portfolio Selection: Whenever possible, use adjusted portfolio data for your analysis. While it may seem counterintuitive, adjusted data often runs faster because data quality issues have already been resolved. It’s like using ingredients that you’ve already cleaned and prepped versus starting with raw materials.
• Scenario Management: Be selective with the scenarios you run. For regular monitoring, 2-3 core scenarios are often sufficient. Reserve comprehensive scenario sets for deep-dive analysis or regulatory submissions.
• Rollover Horizon Tuning: As discussed earlier, the rollover horizon is a critical performance lever. Set your rollover horizon to match your analysis needs, not your maximum time bucket. A European bank was able to reduce their analysis time by 40% simply by adjusting their rollover horizon from 15 years to 7 years, with no meaningful impact on their results.
• BEP Complexity Management: Keep your Business Evolution Plans as simple as possible while still meeting your needs. Use fewer segmentation dimensions when possible and choose appropriate target variables.

The following table provides a general indication of the best practices of selecting parameters for each analysis type, based on a typical mid-sized bank portfolio.

Analysis type decision tree

The following decision tree provides a step-by-step guide to selecting the right analysis type. Start by identifying your primary purpose for the analysis, and then follow the branches to determine the most suitable approach.

Conclusion and Action Items

In this post, we have explored the different types of calculations you can perform in SAS ALM on Viya and provided a best practices framework for choosing the right analysis type for your specific needs. We have seen that the choice of analysis type has a significant impact on both the performance of the system and the business value of the results. By following the best practices and using the decision framework outlined in this post, you can optimize your ALM analysis for both performance and accuracy, enabling you to unlock the full potential of SAS ALM on Viya.

Now that you have a better understanding of the different analysis types in SAS ALM on Viya, here are a few action items to get you started:

• Review Your Current Setup: Take a look at your current ALM analysis setup. Are you using the right analysis type for each use case? Could you optimize your rollover horizons?
• Start Simple: If you are new to SAS ALM on Viya, start with a simple run-off or static balance analysis to get a feel for the platform.
• Experiment: Don’t be afraid to experiment with different analysis types and configurations to see what works best for your institution.

By taking a thoughtful and strategic approach to your ALM analysis, you can ensure that you are getting the most out of your investment in SAS ALM on Viya and making better, more informed decisions for your institution.

For more information on SAS Risk Management Solutions visit the software information page here. For more information on curated learnings paths on SAS Solutions and SAS Viya, visit the SAS Training page. You can also browse the catalog of SAS courses here.

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