Exactpro Test Automation Approaches: A Case Study in Risk Management

• Introduction
• Challenges
• Test Automation Approach
• End-to-End Verification of Margin and Risk Calculations for all Cleared Instruments Using a ‘Risk-Based Margining’ Algorithm

Introduction

This is a case study about challenges of testing Risk Management systems and our test automation and testing approach developed and implemented for our client, a Central Counterparty responsible for clearing and risk management of CCP-eligible transactions on a leading European exchange.

Challenges

1. Functional Area:

   the underlying mathematical concepts are quite complex, and large volumes of data are used;

2. Calculation of Margins:

   Margins are calculated using:

   • the MVP (Method for Portfolio Valuation) methodology for Governments Bonds;
   • the MARS (Margining System) methodology for Equity Derivatives and Equity Cash products;

3. The Aim of Initial Margin (IM):

   Initial Margin is called on a daily basis to cover theoretical costs of liquidation in order to close the open positions in the worst possible market scenario, within a maximum price variation range called “Margin Interval”. The “Margin interval” is specific for each financial instrument;

4. Intraday Margin:

   intraday margins are called by the margining system if sudden sharp price variations occur or in the case of a Member’s excessive overall risk exposure;

5. Default Fund:

   a Default Fund is managed by the system as additional protection aimed at covering risks associated with sharp price/interest rate movements. The Default Fund amounts are calculated as a result of periodic stress tests.