Scenario analysis has proven to be an essential method to support asset allocation decisions and monitor the financial risk of investment portfolios. By generating economic scenarios, the possible future states of global economies and capital markets can be simulated. Here it is crucial that the behavior of these scenarios and variables at different horizons and frequencies is plausible over time.
The Dynamic Scenario Generator (DSG) models consistent market behavior in asset prices, yield curves and volatilities across different regions and currencies. Our real world economic scenarios are compliant with commonly accepted empirical laws such as the term structure of risk and return (risk and return properties vary with the horizon), business cycle dynamics, term structure dynamics, time-varying volatilities and extreme tail dependencies.
Besides the DSG software we supply our clients a fully calibrated scenario set. The variable coverage incorporates all relevant macro-economic variables and a wide range of liquid and illiquid asset classes, including alternative assets for all major countries in the world. We provide updates on a monthly basis to assure that recent market information is continuously factored into the scenario sets.
To facilitate market consistent pricing applications, Ortec Finance also provides a risk neutral (RN) scenariogenerator. The RN scenariogenerator employs the latest risk-neutral stochastic models and is calibrated on a monthly basis.