• Resources
• Case Studies
• Video Testimonials
• Derivatives WIKI
• Derivatives Articles
• Derivatives Regulations
  • Derivatives and Hedging
  • Fair Value Measurements
  • Disclosures
  • Employee Stock Options
  • Basel II and Sarbanes-Oxley
• Expert Interviews
• Finance Survey
• Glossary
• Product Documents
• Webinars
• White Papers
• Login

Home > Resources > WIKI

Portfolio Scenario Analysis

Introduction

Portfolio scenario analysis allows users to shock market data to see the resulting impact on the portfolio. In other words, the user can see what would happen to their portfolio under their defined scenarios.

Technical Details

A common scenario is a parallel shift in the interest rate curve. The portfolio is then revalued with the shifted curve and the difference is calculated. A user can build a scenario which consists of one or more shocks.

If the scenario consists of more than one shock, then the shocks are applied sequentially to the market data, and the scenario can be thought of as a compound scenario. For example, one shock may be defined to be a 100 bp upward shift of the USD interest rates; another shock may be a rise in the value of the US dollar by 1% relative to all other currencies. If both of these shocks are included in a scenario, then the scenario will apply both adjustments to the market data.

Analysis Supported

Below are some common examples of scenario analysis that FINCAD supports, however, depending on which FINCAD product is chosen, possibilities other than the ones listed below can also be generated by applying a scenario to market data, to the market data of a model, or a composition of other scenarios.

Interest Rate Shock - Parallel Shift of the Yield Curve

The parallel shift of the yield curve allows the user to bump the interest rate curve (the input quotes) by a constant spread, either positive or negative, which corresponds to upward or downward shifts of the interest rate curve, respectively. The user can assign one or multiple shocks to a scenario, revalue the portfolio under this scenario, and calculate the difference between the original and scenario fair value.

Interest Rate Shock - Non Parallel Shift of the Yield Curve

The non-parallel shift of the yield curve allows the user to bump the interest rate curve at different maturities.

FX Shock - Spot Rate Scaling

This allows the user to adjust the FX spot rate by applying a scale factor. It is applied to a specific currency. The scale factor specifies if and by how much the currency appreciates or depreciates against all other currencies.

Commodity Price Shock - Commodity Price Uniform Scaling

This allows the user to adjust the Commodity Futures price with different maturities by applying a scale factor. It is applied to a specific commodity type (e.g. Heating Oil futures prices rise by 5% for all maturities). The scale factor specifies if and by how much the Commodity Futures prices will increase or decrease.

To learn more about FINCAD products and services and their approach to performing Scenario Analysis and calculating Key Rate Duration, contact a FINCAD Representative.