Garbage in – garbage out
It may be useful to underline that if a scenario is irrelevant, the measure of risk made through a simulation model will be irrelevant too. Risk management is not a science, it is an art; the art of designing relevant scenarios.
The impact of an interest rate change on the net interest margin of a bank is analysed through
The simulation consists of the forecast of balance sheets and income statements related to different scenarios.
Risk management = design relevant scenarios, analyse the risk, and decide how ...