Scenario analysis is at the core of KRM’s design. The multiperiod framework with extensive aggregation capabilities allows for a detailed cashflow analysis at the position level that can be structured according to GPIF’s requirements.
Historical factor covariances can be used to generate simulations along which the positions in the portfolio will be valued. The user can group risk factors. KRM will then provide risk contribution with respect to each factor group. This grouping can for instance be done across interest rate risk factors, macroeconomic factors, FX-rates, volatilities, spreads, credit risk parameters, stock prices, stock price indices.
In addition, KRM allows for the creation of factor-based scenarios, macroeconomic or others, that can be based on observed historical data or provided as future potential scenarios. As in the use of stochastic factor simulations, the valuation results can be aggregated accordingly.
The combination of portfolio rebalancing and factor simulations provides detailed simulated valuation outputs that can be used to measure a change in the investment strategy in different market conditions.