This example Excel spreadsheet illustrates the classification of derivative products within the context of classifying them based on their applicable risk factors. This could be for the purpose of evaluating their risk profiles e.g. for P&L attribution.

Given a list of derivative products (we use a sample list of credit derivative products):

We first decompose each product into a set of behavioral properties – drawing from a properties inventory that includes properties based on the underlying observable as well as the instrument.

Decomposing Product into properties

Then, we define a list of risk factor taxonomies. And for each one, we define a set of properties based membership rules. These are based on the same set of properties from our property inventory.

Risk Factors ruleset

Finally, we use the risk factor ruleset and the products (as decomposed into the constituent properties) to classify these into the risk factor taxonomies defined.

Risk Factor matrix by Product

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