Pricing, Risk, and Performance Measurement in Practice

Chapter 5 Implementing Valuation Models

We outline and demonstrate the four main steps to implement and refine valuation models in an evolutionary iterative way. We show how to build and use checklists to guide your valuation model implementation, and how to master your valuation model meta-, input, and output data within the framework of the data model blueprint introduced earlier.

5.1 Valuation Model Implementation—Step by Step

There are four main steps in a valuation model implementation using the building block approach (Figure 5.1).

Figure 5.1: Valuation model implementation steps.

First, you will need to decide how the instruments ...