We know that uncertainty is one of our clients’ major issues, leading us to incorporate an innovative forward-looking feature into our software.
Run a simulation of future values at certain dates and study the evolution of the contract according to a set of forward-looking scenarios.
Specify a set of scenarios and a set of increasing dates for the valuation that you want. The scenarios will describe how your market data, used for managing and/or pricing the contract, will evolve in the future. Market data that do not appear in the scenario stay constant and are shifted along the simulation timeline.
For each scenario and each valuation date, the contract is managed to obtain the residual contract, which is then priced in the market situation (obtained by applying the scenario).
Once the simulation has been computed and results have been generated, an elaborated and unequaled post-processing task can be performed on the data. Take advantage of the seven components of this post-processing functionality of Forward Simulation:
Underlying on horizons and contracts
Residual value by horizon date
Annual yield distribution
Life in years distribution
Figure 1: Details of future cash flows including residual prices, annual yield and remaining life of the contract
Figure 2: Chart of the residual value by horizon
Figure 3: Chart of the annual yield distribution
Figure 4: Chart of the life in years distribution