Portfolio Interest Rate Risk Management
Risk Management is one of Blue Water Financial Technologies’ key pillars, so it is no surprise that we take risk management very seriously. Blue Water Financial Technologies has a highly experienced staff of Portfolio Managers, Financial Engineers, and Modelers focused exclusively on key Customer Hedging Program outcomes and performance measures. We leverage highly sophisticated valuation models as the cornerstone of our risk management framework, bringing an extensive cadre of experience and a steady hand to everything we do. Our MSR Hedge Framework is built upon a set of highly rigorous principles centered around regulatory compliance, explainability and performance.
We would be remiss if we viewed Risk Management as its own “silo” in terms of what we do. In fact, we believe that the interconnected nature of Pricing, Risk Management, Distribution and Operational Focus creates the need for a more integrative approach. We leverage our integrative approach and the associated feedback loop as key differentiator and value creator for our firm and its customers.
What Is it?
- Stochastic/OAS valuation model and risk/limits framework developed under heightened standards framework at a super regional bank
- Daily Risk Reporting, Profit and Loss, and Attribution Analysis
- 24/7 Risk Monitoring
How does it work?
- Administration and oversight by SEC registered Investment Advisor
- Integrated solution for MSR valuation and hedge instruments, resulting in risk neutral framework that has lead to high hedge correlation and low unexplained P&L
- Model calibration:
- MSR prices and risk based on traded MSR and market IO proxies (IO TBA)
- Prepayment model tuning – TBAs and MSRs are customized to match actual performance.
What are the benefits?
- High prepayment modeling accuracy equals reliable cash flow forecasts
- Stochastic model calibrated to market prices results in real time valuation and flatter asset profile
- Fewer hedges and less convexity = uses less cash
- Lower initial and variation margin and fewer purchased options
- Less frequent trading and rebalancing = lower commissions and fees
- Provides hedging services for Mortgage Loans and MSR portfolios.
- Offers risk management solutions.
- Helps clients manage market fluctuations.
- Supports strategic decision-making.
- Ensures compliance with industry standards.
