SAS expands risk management with HPC in-memory analytics

Recentadvancements in high performance computing technologies from SAS Institute Inc.,including an in-memory analytics solution that uses Hewlett-Packard Co.hardware, are expanding possibilities for risk management.  

HPC is changingrisk management, according to Michael Stefanick, head of the risk managementpractice at SAS, by integrating both business functions and risk functions intothe business decision process. “A business manager can actually look at therisk dynamically as he starts to make decisions,” he said. 

Three highperformance computing (HPC) solutions are available: in-database processing,distributed grid computing and in-memory. The in-memory analytics solution isthe company’s most recent advancement and was formally announced this summer.

SAS saysthe technology enables simultaneous calculation of complex analyticalcalculations and instant access to results. The solutions will be generallyavailable in late 2010, starting with risk management and then retail.

The HPC technology provides a way for financial institutionsto attack large risk management problems in parallel, perform real timeportfolio stress-testing and create detailed cash-flow projects, says SAS.

At a recenthigh-performance risk briefing for the financial industry in Toronto, Stefanick said applications ofthe technology include scenario analysis, covariance simulation, currentexposure, cash flow analysis, conditional Value at Risk (VaR), Monte Carlo simulations, potential future exposure (PFE),liquidity and stress testing.

Thedistributed computing solution reduces the probability of loan defaultcalculation time from 96 hours to four hours and the in-database solution reducesscoring of purchase behavior models from 4.5 hours to 60 seconds, he said. SASin-memory analytics can reduce 8.8 billion portfolio VaR computations from 18hours to less than three minutes, he said.

ITdepartments have struggled for years with the amount of historical they need toretain as well as the complex path-dependent mathematical calculations, saidStefanick in an interview with ComputerWorldCanada. And HPC is helping “not only to shorten that calculation time, buton the inputs in terms of the number of data elements that have to be stored,”he said.

“I can justtake real time data from sources that are available, put it into thisappliance, and it will sort out very quickly which ones are important and whichones aren’t,” said Stefanick. SAS’s HPC technology holds “all those resultsmemory-resident, so the analyst only needs the ones that are important to themat the time of calculation,” he said.

Highperformance computing is changing risk management by bringing together thefront office “earning money” team with the back office “risk control” team,said Nobel laureate economist Myron Scholes, a speaker at the SAS event.

A systemthat is both dynamic up front and systematized for the back end, he explained,moves it from being a reporting function to part of the actual operations of acompany. “If you get answers quickly at low cost, then you bring it into partof your decision-making framework,” he said.

At thebriefing, Scholes defined risk management as “the idea of managing underuncertainty” and suggested a change of focus. “We have to think in terms ofrisk all the time and embrace uncertainty,” he said.  

“Riskmanagement is always the idea that you are trying to measure risks … my view isthat you are not really trying to measure risks, you are trying to understandhow risk itself affects the decisions you make,” he said.

In-memorycomputing is opening up “a whole new world” for risk management, said Wes Gill,executive lead of risk management at SAS Canada.

Economicsconcepts such as liquidity and time horizons and shocks can now be modeled “inreasonable time frames, whereas before, people just weren’t doing it becausethe technology wasn’t there to do it,” he said.

Financialinstitutions can use the technology to improve their models and remove some ofthe inaccuracies, he said. “What we are able to do is get rid of some of theassumptions that we used to have to make to collapse data into aggregatenumbers,” he said.

“Thiscomputation, because it runs so fast, allows us to basically go back and take alot of those assumptions out in terms of aggregation, which makes the model alot more accurate – and run the model through in a reasonable amount of timethat management can use,” said Gill.

While thecomputation doesn’t replace management judgment, it allows management to “getthe answer back in minutes as opposed to days,” he said.

“We canmake it near real-time for them, so they can make a lot of decisions faster andthey can make their models and the results from the models a lot moreaccurate,” said Gill. This also means doing “a lot models than they’ve everbeen able to do in the past,” he said.

SAS’sin-memory computing solution operates on HP BladeSystem infrastructure withLinux. Gill said the “secret sauce” behind the technology is the ability totake “those millions or billions of calculations” and allocate them to over2,000 plus CPUs at the same time.

A recent SAS white paper co-authored by Scholes andStefanick, “Evolving from Quantitative Risk Management to a High-PerformanceRisk Management Analytic Framework,” suggests financial services institutionsmove to a single integrated and common risk, capital and management platform.

And SAS’s high-performance risk management appliance – whichconsists of an integrated risk and capital analytics mart, integrated riskanalytics engine, integrated management analytics environment and integrated hardwareenvironment that uses commodity hardware – provides this platform, according tothe report.

“By having all of the core components already integrated ona common platform, less time and money can be spent on the infrastructure.Therefore, more time can be spent on analyzing the risk problems and optimizingthe capital deployed,” states the report.

HPC ischanging risk management, according to Stefanick, by integrating businessfunctions and risk functions into the business decision process. “A businessmanager can actually look at the risk dynamically as he starts to makedecisions,” he said. 

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