If you have non-liquid positions that you expect to hold over some period of time, it is not satisfactory to measure the overnight risk only, as you would typically do with Value-at-Risk. In these cases you want to asses the worst thing that may happen over time in an adverse market scenario. Long-term risk related to large price movements are measured in Matrics by sensitivity analysis or stress testing. This consists of testing changes in portfolio P/L towards a set of user defined scenarios.
Market scenarios are easily defined in Matrics and can include anything from simple price movements, e.g. ‘All prices up by 50%’, ‘All prices down by 50%’, etc. to any sort of spread changes, e.g. Panamax/Supramax spread up with 10%, Cal-10/Cal-11 spread down with 10%, etc. The scenarios can be defined in terms of relative changes or as fixed rates. Scenario definitions can also include volatility and/or interest rate changes.
Once the scenarios are defined, the effect on any standard report can be tested by simply selecting the desired sensitivity scenario from a drop-down menu. Although simple in principle, stress testing is very cumbersome and time-consuming in many risk management systems. Matrics makes this so easy that there are no longer any reasons for not stress testing your portfolio results properly.
If you have defined many different market scenarios, you can easily get Matrics to list the results of applying all scenarios in a specified set to a given report.
