Derivatives Modelling
We develop and implement state-of-the-art models for derivatives valuation. Besides the obvious
focus on price determination VAR Strategies focuses on risk assessment and hedging strategies.
- We perform an analysis of the key economic drivers behind the value of the product.
For structured products a full risk assessment is made to determine the consequences in normal,
but especially in extreme scenarios.
- Model selection: based on our analysis of the key drives we select a variety of
suitable models based on realistic dynamics, computational efficiency, user-friendliness and
intuition of parameter specification.
- Hedging Strategy: after the model selection a hedging strategy is stipulated.
Furthermore, the effectiveness of the hedging strategy is tested following the specified
model dynamics.
- Robustness: In addition to the within-model hedge effectiveness we analyse the hedge
effectiveness in case of model mis-specification.
