Financial Engineering Associates (FEA) has received a second US patent on its value at risk (VAR) technologies. The newest FEA technology was termed the “Watershed Method”. The importance of the invention is that it will allow market risk to be more accurately allocated to accounting periods, say officials.
Tracie Rowson, executive vice president of FEA, lauded CEO & chief scientist Mark Garman on the achievement. “This is actually the fourth US patent awarded to FEA for which Mark has served as inventor. Our prior patent in the VAR arena pertained to the calculation of “marginal VAR” or “Component VAR”, which allowed risk managers to “slice and dice” or dissect enterprise-wide VAR into its constituent components,” says Rowson.
“The significance of this technology is that it improves the accuracy of attributing the origins of market risk, whereas previous analytic VAR methodologies suffered from distortions due to ignoring pertinent time boundaries,” says Garman. “The Watershed Method augments traditional methods by creating a watershed division at the ends of accounting (and other arbitrary) periods, so that the cashflow mapping process cannot cross these divisions. A major benefit is that risk managers can now be much more confident about the allocation of market risk to their companies accounting periods, including the allocations made via the FEA Component VAR technology. This benefit is of particular importance in the emerging corporate VAR market, where the SEC has mandated registrant risk disclosure.”