Market Data Scenario

A market data scenario is a complete set of market data that has the same composition as the current market data. It is used to define a possible or probable market situation, such as a period of high interest rates with an inverse yield curve.

You use market data scenarios to simulate the influence of market price changes on the bank portfolio.

You differentiate between market data scenarios on the basis of their scenario category and their complexity, as follows:

• Market Data Scenario

  You can define exchange rates, yield curves, interest rate spreads, security prices, and their volatility in a market data scenario. A market data scenario defines only a subset of selected market data within the current market data. If the system is unable to find market data in the specified market data scenario, the system uses the most recent market data available for the horizon, and rates this data.

• Scenario Progressions

  Scenario progressions represent a chronological sequence of scenarios and enable a more complex representation of possible developments in the market price. In Risk Management, you can use scenario progressions to analyze the effects of market price changes on the periodic risk positions of your bank. The system interpolates between the given scenarios.

• Scenario Sequences

  Scenario sequences correspond to scenario progressions. However, the system does not interpolate in periods between scenarios.

You can use market data scenarios in Strategy Analyzer to simulate the influence of changes in market prices on the bank portfolio. To do this, you first assign market data scenarios and scenario progressions or scenario sequences to a scenario set, which the system accesses during the valuation run. You can define scenario sets in Customizing for Market Data under  Market Data Scenarios  Edit Scenario Sets .

Using a scenario progression has the following effects:

• The system does not use forward rates to break down reference interest rates, rather it uses the scenario progression to determine the interest rate.

• If the cash flow date is the same as the evaluation date or a scenario progression date, the system uses the current market data or the scenario valid on the scenario progression date.

• If the cash flow date is before the evaluation date, the system uses historical market data.

• If the cash flow date is between two scenario progression dates or between the evaluation date and the first scenario progression date, the system determines the market data by linear interpolation between these grid points.

• If the cash flow date is after the last scenario progression date, the system uses forward rates for exchange rates and interest rates. Alternatively, the system takes the values from the last scenario progression date.