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Scenarios

• Are hypothetical outcomes or path dependent behavior for trading, hedging or analytical purposes.

 
 Embedded terms in definition
 Dependent
Hedging
Path dependent
Path
Trading
 
 Referenced Terms
 Flux: Is the Flow Uncertainty Index. It refers to a financial model developed for the National Association of Insurance Commissioners to quantify the relative risk or variability of CMOs over a range of interest rate Scenarios.

 Simulation: A statistically based behavioural approach that applies predetermined probability distributions and random numbers to predict the range and likelihood of risky outcomes.Are the results or the processes of generating data and outcomes for different paths and Scenarios. It provides a statistical framework for what-if conditions. The art of the simulation is trying to construct an elegant, representative model. This model should properly weigh, in a probabilistic sense, the expected behavior of the time series.The use of a mathematical model to imitate a situation many times in order to estimate the likelihood of various possible outcomes.

 Span: Is the Standard Portfolio Analysis of Risk (SPAN®) system. It was initially developed and implemented by the Chicago Mercantile Exchange. Other exchanges and clearinghouses have since adopted this methodology. It evaluates the performance bond, or margining requirements, for positions on a portfolio basis. It matches and evaluates similar instruments. These instruments can be futures, options, and derivatives. SPAN® tries to indicate the largest potential one day loss that a portfolio might experience. These losses can be attributable to adverse price and volatility behavior. Since the inception of SPAN®, methodologies such as Value at Risk (VAR), have also focused on standard deviation (confidence level) statistics. SPAN® uses 16 different Scenarios or market conditions in the calculation of the risk arrays.To cover all contingencies within a specified range.

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