Calculate value at risk (VaR) by using AWS services

Calculate value at risk using AWS template shows how to calculate Value at Risk (VaR) from a set of AWS cloud resources. VaR is just one of the popular approaches to measuring how much you can lose over a given period while markets change. The template combines several AWS tools in a way that means risk is calculated immediately when new trade data is received.

It uses Amazon Kinesis Data Streams for real-time ingestion and data transfer. It uses AWS Lambda for computation. Amazon SQS queues messages correctly. Amazon ElastiCache stores most recently accessed data so that the system does not have to look for it every time. Results are saved in Amazon Aurora and S3 Buckets for long-term use.

The whole setup is cloud-based and is therefore not fixed and does not have any issue transferring lots of data without delay.

Why this template is a game changer ?

Teams would previously wait for end-of-day reports or even calculate intricate computations manually. That meant that critical decisions were delayed. Markets evolve, and if you do not promptly know your risk exposure, you can make poor trades or break compliance rules. This template addresses that problem. Because it is based on AWS services, it can handle data as it comes in. Amazon Kinesis Data Streams handles a stream of data in real-time. AWS Lambda scales automatically to handle more computations if the market gets too hectic. You never need to buy more servers or hardware.

It's a solid system and you can rely on output. You can also update or extend it fairly easily if your requirements expand. It's an extremely practical solution to contemporary financial risk management.

Who can use this template and when? 

This template is useful for:

• Banks and financial institutions that compute risk on a daily basis.

• Firms that process high amounts of market data.

• Risk management departments that need to view their risk exposure in real-time.

It is most beneficial when you are viewing continuous trades and need instant data regarding your potential losses. For example, if your portfolio is changing every few hours, waiting for risk numbers for hours can be risky. This feature gives you current numbers nearly in real-time.

It is also great when there is a lot of activity in the market. If news breaks and affects prices, you can instantly look at your real-time risk and make better informed decisions.

What are the main components of the template? 

Below is a simple description of every segment in the installation:

• Amazon Kinesis Data Streams – It processes trade and market data in real-time.

• AWS Lambda – It executes the VaR logic. This can be Monte Carlo simulations or something else.

• Amazon SQS – It queues messages, so information moves in an orderly fashion, and nothing is lost.

• Amazon ElastiCache – It stores data that is used most often, so you can access it faster.

• Risk Calculation Queue – It processes all VaR calculation requests.

• Amazon Aurora – A reliable database in which to keep all end calculation results.

• S3 Bucket – Where raw data and end risk reports reside.

• Ticket Position Netting – Helps to ensure that trade positions are correctly netted before computation of risk.

• Risk Calculation Engine – A single piece of code that does most of the risk calculation work.

• Order Management System – The system which delivers trade information to the pipeline.

• Event Processing Pipeline – The entire process your data goes through as it's streamed and processed.

• Cloud Security – Encrypts all data and maintains strict access controls.

Each of these parts exists together so that you get fast and accurate VaR numbers without ever having to do anything manually.

How to start with Cloudairy ?

It is simple to apply this template using Cloudairy:

• Log in to your Cloudairy account.

• Go to the Templates option.

• Type Calculate Value at Risk (VaR) in the search box.

• Click on the template that appears.

• Click on Open to open the diagram.

After you have the template open, you can make changes to it if you want to. You can add new data sources, change the Lambda function, or include other AWS services. Cloudairy has access to the entire architecture, so you'll see how each one operates.

If you are collaborating on a team, you can use Cloudairy's collaborative functions to work together on changes. After completion, you can save your design or export to deploy.

Summary  

This is a template that allows you to compute VaR using AWS services. It combines Amazon Kinesis Data Streams for real-time data, AWS Lambda for speed of calculation, Amazon SQS for fast message processing, and Amazon ElastiCache for speed of accessing data. The output is saved in Amazon Aurora and S3 Buckets, so you have a secure copy of your risk calculations. With such an arrangement, banks are able to handle massive volumes of data without lag.

They are able to perform calculations such as Monte Carlo simulations in real-time and observe updated risk figures at any moment. It enables teams to make more informed decisions, remain compliant, and manage market changes with confidence. If you require a system that is scalable, fast, and simple to manage, this template is an excellent place to start. It puts solid AWS services together in a practical, straightforward manner, even for the not very technical.