Modelling market risk with SAS Risk Dimensions : a step by step implementation

Financial institutions invest in financial securities like equities, options andgovernment bonds. Two measures, namely return and risk, are associated witheach investment position. Return is a measure of the profit or loss of theinvestment, whilst risk is defined as the uncertainty about return.A financial institution that holds a portfolio of securities is exposed to differenttypes of risk. The most well-known types are market, credit, liquidity, operationaland legal risk. An institution has the need to quantify for each type of risk, theextent of its exposure. Currently, standard risk measures that aim to quantify riskonly exist for market and credit risk. Extensive calculations are usually required toobtain values for risk measures. The investments positions that form the portfolio,as well as the market information that are used in the risk measure calculations,change during each trading day. Hence, the financial institution needs a businesstool that has the ability to calculate various standard risk measures for dynamicmarket and position data at the end of each trading day.SAS Risk Dimensions is a software package that provides a solution to thecalculation problem. A risk management system is created with this package andis used to calculate all the relevant risk measures on a daily basis.The purpose of this document is to explain and illustrate all the steps that shouldbe followed to create a suitable risk management system with SAS RiskDimensions.