Moody’s Analytics has added market risk analytics to its PFaroe Portfolio Management (PM) Platform.

PFaroe PM now offers historical and Monte Carlo risk analytics alongside its multi-asset class performance attribution capabilities. PFaroe PM is a cloud-based solution which allows users to customise their performance attribution and risk analyses while providing an interactive tool to probe and analyse results.

The historical and Monte-Carlo analytics use a new simulation engine to generate market scenarios. Historical simulation applies past returns to market factors such as equity prices, interest and FX rates, market-implied inflation rates, among others. Monte-Carlo simulation, by comparison, uses the correlation and volatility of those same market factor returns as the basis for the generation of thousands or even tens of thousands of scenarios. Given this scale, Monte-Carlo simulation allows for extreme tail events to be modelled. Further, Monte-Carlo simulation allows more recent events to be given more weight, capturing changes in market volatility quicker.