Risk is not static. Market conditions can often affect the risk of a product so substantially that its risk/yield profile changes. Such a change in risk compared to the time of investment can render a product unsuitable. Both market participants and regulators therefore increasingly expect a dynamic risk calculation.
EDG delivers an adequate dynamic risk calculation for different asset classes. The methods applied include:
- Calculation of partial risks, analysis of the risk components
- Sensitivities (Greeks)
- (Historical) simulations
- Scenario analyses
Since July 2005, EDG has offered risk classification based on five simple risk classes which permits a more intuitive assessment of certificate and leveraged product risk. The risk classification of a product is based on value at risk (VaR) which is the established (regulatory) market standard. To calculate VaR and hence the risk class, EDG disaggregates every product into its individual components. The dynamics of certificates and leveraged products are taken into account by risk class updating several times per week. This risk analysis is currently performed for more than 90 % of the products issued on the market.
With its risk classification procedure, EDG supports the transparency initiatives of the German Derivatives Association (DDV), the Certificate Forum Austria (ZFA) and the Swiss Structured Products Association (SVSP).