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Full Valuation Method

  • Full Valuation method is the process of measurement of risk of a portfolio by fully re-pricing it under a set of scenarios over a time period. It can be used to cover a large range of values of the portfolio returns in order to provide more accurate results. It generally provides more accurate results compared to delta normal approach but is a complicated process.
  • Advantages over delta normal:
    • It accounts for non-linearities of derivatives whereas delta normal assumes a linear approximation.
    • It accounts for extreme fluctuations.
  • Two popular methods under full revaluation approach have been explained in the subsequent slides.

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