The Client's Requirements A tier 1 Swiss investment bank was concerned, that the pricing models for their FX products may not appropriately reflect the book's skewness and kurtosis risk. The concern was raised, as for single positions some significant model sensitivity
could be observed.
Our Solution We implemented benchmark pricing models for all vanilla and exotic FX products in the book and re-priced the book, which consisted of a six figure number of trades. The analysis revealed, that the trader's assessment, that the book as a whole
was not sensitive to the modeling assumptions, was correct.
The Client's Benefits We could provide to the client information on model risk, which was not based only on the analysis of some sample trades, but which was referring to the actual book and hence to the actual risk the institution incurred.