TradeRisks uses proprietary methodologies to perform Monte Carlo simulation analyses and stress tests on clients’ debt portfolios in the context of their financial plans. By simulating currencies, interest rate yield and volatility curves, inflation (RPI and CPI), we evaluate financial performance and the probability of covenant breaches occurring under different debt mixes. We then advise on short term risk and long term risk-return trade-offs in respect of debt portfolio hedging and funding strategies.
Simulations are based around today’s implied forward market projections and use historic forward prediction errors from market data which is sampled directly (i.e. without parameterisation). In this way, our simulations capture extreme event correlations and the tendency for extreme events to occur more often than extrapolation from historic data would suggest (“fat tails”).
