Sensitivity Analysis

The RiskWin framework provides a powerful capability for Sensitivity Analysis - which is also referred to as Stress Testing.

There are two main design features of the framework that provide this capability.

One feature is the Valuation process which integrates the Security, Position and Portfolio components with the World State and World Variable components.

The second feature is the Data Variable based means of constructing World Variables out of World Variable Data components. In addition to World Variable Data components, there are two more components that are part of this Data Variable based design: External Data Variables and Computed Data Variables.

Briefly, External Data Variables are used to connect to real-time data; and Computed Data Variables are used to process data from External Data Variables to prepare it for use in various World Variables. All data in World Variables is specified using World Variable Data components.

The role of the Data Variable in Sensitivity Analysis is related to its contribution during the valuation process. The valuation process relies on a World State and each World State is at some level composed of World Variable Data components. Since these World Variable Data components can be dependent on External Data Variables and on Computed Data Variables, changing any one of these Data Variable components will affect the valuation result.

Therefore, Sensitivity Analysis in the RiskWin framework requires:

  1. A choice of one measure from the list of basic measures;

  2. A choice of World State at which the valuation of the measure is to be carried out;

  3. A choice of at least one Data Variable against which the sensitivity of the measure is to be evaluated;

  4. A specification of the range for the Data Variable over which the valuation is to be done;

  5. A possible second choice of Data Variable and associated Data Variable Range ;

  6. A choice of date at which all the valuations are to be done.

It is possible for one of the Data Variables to be Time which can be set as a range in units of days. [In this case, item 6 above is not required.]

In the current framework, only the basic measures are available for Sensitivity Analysis. Sensitivity to the advanced measures will be provided in some future release.