rate: Constructing a Rate (Risk Factor)

Description Usage Arguments Value Note Examples

View source: R/riskFactor.R

Description

Constructor for the S3 class rate. It allows to define a rate-type risk factor. This risk factor refers to the "stetigen Zins" change Δ R_{j}(t, i_{τ}) for a certain horizon index i_{τ} and a certain currency j in the valuation function for "Fixed-Income-Assets und Versicherungsverpflichtungen" presented in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung".

Usage

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rate(name, currency, horizon, scale = NULL)

Arguments

name

a character value. If the length is one, this corresponds to the name in the covariance matrix of the marketRisk to which the rate risk factor is mapped. This means that the risk factor change Δ R_{j}(t, τ) in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung" (version 31.1.2018) will be assumed to be modeled by the underlying normal random variable corresponding to name in the covariance matrix (potentially scaled by scale if not NULL). If the length is strictly greater than one, this corresponds to multiple names in the covariance matrix of the marketRisk to which the rate risk factor is mapped in the case of principal component modeling. This means that the risk factor change Δ R_{j}(t, τ) in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung" will be assumed to be modeled by a linear combination (with coefficients scale) of normal random variable corresponding to the multiple names name in the covariance matrix. Please refer to the note section to have more information.

currency

a character value of length one. The currency in which the underlying "Fixed-Income-Assets oder Versicherungsverpflichtungen" is valuated. This refers to the currency corresponding to the index j in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung".

horizon

a character value of length one. The time-to-maturity (projected on the time mapping). This refers to the index i_{τ} in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung".

scale

a numeric value of length one. If not set NULL, this defines a scaled risk factor equal to scale times the risk factor defined by name in the covariance matrix contained in marketRisk. By default its value is scale = NULL. In the case of principal component modeling (i.e. name of length strictly greater than one) this parameter should be provided as a numeric values of the same length as name corresponding to the loadings in the principal component decomposition. Please consider that these loadings should be contained in the Euclidean disk, i.e. the sum of there squared value should be below 1, if not a warning will be triggered.

Value

An S3 object, instance of the class rate.

Note

In the case that principal component modeling of rate curves is chosen, all risk factors named in name should be scaled, otherwise an error will be triggered.

Examples

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# constructing a non-scaled rate risk factor
# (assuming "2Y_CHF" exists in marketRisk).
r <- rate(name     = "2Y_CHF",
          currency = "CHF",
          horizon  = "k")

# constructing a scaled rate risk factor
# (assuming "2Y_CHF" exists in marketRisk).
r <- rate(name     = "2Y_CHF",
          currency = "CHF",
          horizon  = "k",
          scale    = 0.5)

# constructing a rate risk factor from principal component
 r <- rate(name     = c("pcRate_EUR_1",
                        "pcRate_EUR_2",
                        "pcRate_EUR_3"),
           currency = "EUR",
           horizon  = "k",
           scale    = c(0.3, -0.2, sqrt(1-(0.3^2)-((-0.2)^2))))

sstModel documentation built on May 4, 2018, 1:04 a.m.