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	Advisory
	John, Risk Manager in an international bank has been asked to stress test a portfolio of Asset Swaps and CDS, focusing on the implied basis risk that is captured in the z-spread of the structured deals. The Risk system used by John’s bank does not model the z-spread properly and John’s need some support to speed up the portfolio stress test and be ready for the bank ICAAP regulation approval.
RiskWave was approached to assess the issue, suggest and implement a quick solution. We proposed a solution based on a generation of two different credit curves to value the asset swap and the CDS leg of the portfolio. Our solution includes a bootstrapping of the hazard rate curves for the CDS leg and the generation of an implied credit spread curve for the asset swap leg. Riskwave was able to build a proper stress testing valuation model and implement the solution as agreed with the bank.

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Case Study