Use Monte Carlo VaR to Analyze Portfolios with Derivatives

Whether used to increase leverage, generate income, or manage risk, derivatives strategies require a different framework to analyze portfolio risk.

When introduced into an equity-only portfolio, equity options change the distribution of the portfolio’s expected returns. Correctly account for equity options using FactSet’s Monte Carlo VaR analysis.

• Select any portfolios, benchmarks, or composites available to you in FactSet to perform the VaR simulation against
• Use the same risk models to simulate different factor return outcomes as you would select for tracking error analysis
• Rely on FactSet to compute option returns using the correct pricing model (MacMillan, Barone-Adesi, Whaley for American options and Black-Scholes for European options)
• Include simple and exotic OTC equity or currency derivatives in your analysis