Commodity Risk Management System

The National Bank of Canada’s Commodity Derivatives group trades options and futures contracts on crude oil, natural gas, and other related commodities. Each trader has a portfolio of options and each option has a dynamic risk profile attached to it, which changes rapidly with changing market conditions. To evaluate the risk metrics of their portfolios, the National Bank of Canada previously used an assortment of Excel workbooks. However, using these workbooks is a time consuming and manual process. 

One of the Excel workbooks used by the bank is their risk analysis workbook, which shows the risk of each option in the trader’s portfolio. This project will replace this slow and inefficient Excel workbook with a fast and powerful risk management system. The increase in speed will be beneficial to the traders as the market updates many times within a second. Therefore, the less time that it takes to evaluate the risk of their portfolio, the more opportunities traders will have to react to the market and make a profitable trade.

While the bank’s previous system made use of a slow and outdated Excel spreadsheet ecosystem, our design provides the same functionality and more, using the modern web technology of React. Unlike the spreadsheets, this new system is fast, user friendly, and allows for a great deal of customization. 

We have provided traders with the ability to create custom filters of the data, allowing them to analyze the data using even parameters that they could not filter using before. Additionally, a dynamic layout allows each trader to rearrange the charts and tables on the page to suit their needs. Finally, this design eliminates much of the manual work needed to evaluate the risk portfolio, streamlining and speeding up the process so that traders can be more responsive to rapid changes in the market.

Using modern and reliable web technologies has allowed us to develop a risk management system that effectively meets the needs of traders at the National Bank of Canada. Our new system eliminates the manual work needed by their previous Excel based solution, thus speeding up the process of evaluating their risk portfolio. Data can be grouped and indexed by various parameters, to then be displayed in both graphical and tabular format. All graphs and tables also update in real-time as the market changes, providing traders with the up to date information they need to make informed trade decisions. 

Beyond simply the bank’s current needs, our system has been designed in such a way that additional functionality can easily be added in the future as their needs change. Additionally, our new risk management system integrates well with other tools used by the traders, which have recently been upgraded to use a similar React based solution.

Throughout our project, we made sure to meet with our technical advisor and sponsors from the National Bank of Canada regularly. This ensured that we received constant feedback on whether our design met requirements and whether it was user friendly. Additionally, throughout the implementation process, the team made use of code reviews so that all code was up to standard and had been reviewed by others for errors. Finally, we wrote an extensive test suite in Jest testing all functionality surrounding the filtering and aggregation of data. As decisions concerning large sums of money will be made based on this functionality, it was incredibly important that we tested it thoroughly.

Before starting the implementation phase of the project, we evaluated several different technologies on their ability to meet the project requirements. We regularly met with our sponsors at the National Bank of Canada to make sure that these requirements were realistic and that our design would be able to fulfill them. We also met with our technical advisor throughout the project to ensure that our design was feasible from a technical standpoint.

In terms of making sure that the project could be completed on time, we broke the project down into milestones and planned which deliverables would belong to which milestone. We also made sure to meet as a team regularly to ensure that the project progress was on track for successful completion.