The deal enables Fitch to extend its brand by integrating its credit-rating and risk-management products and services with Algorithmics' risk-analysis applications, which employ statistical modeling to gauge a bank's exposure to market and credit risk.
Systems such as those offered by Algorithmics and its rival, SunGard Data Systems Inc., solve two computationally intensive problems: value-at-risk and stress testing. Value-at-risk is a measure of exposure to fluctuations in interest rates and other forces, expressed as the maximum amount of losses that a portfolio can sustain over a given time period within a given statistical level of confidence. For example, a one-day value-at-risk of $2 million at a 99% level of confidence means that there's less than a 1% chance that a portfolio could lose more than $2 million to market forces in a single day.
Stress testing is a method for measuring a portfolio's ability to withstand abnormal market shocks, such as those following the Sept. 11, 2001, terrorist attacks. Financial institutions are required to maintain high quality in both the data and statistical methods used in value-at-risk and stress testing.