Products to Perform Better Analyses
@RISK makes risk analysis via Monte Carlo simulation accessible to anyone who uses a spreadsheet. You can perform even better analyses by combining @RISK with other products in the DecisionTools Suite, as have these financial industry professionals:
Before Francis Monaghan tried Palisade's @RISK and BestFit products, he used to spend hours creating macros. Monaghan, a senior vice president of research for Zimmerman Investment Company, a $1.2 billion Chicago-based money management firm, would insert his custom-made macros in the spreadsheet cells, and then expose parts of his portfolios to what-ifs and tests of various relationships. "The processing time was just too much," he recalls.
Now Monaghan uses the Monte Carlo simulation in @RISK to, for example, assess the probability of realizing a particular return over time. Let's suppose he was 95 percent confident that he won't have a 2% loss over a certain period of time. To test this theory, he would input the daily trading results generated by his global trading system, and run the Monte Carlo option in @RISK to see the probability of that assumption holding up over 60 days. @RISK collects the values of output cells from the worksheets and stores them for graphical comparison.
"If it comes up with a high probability of experiencing a drawdown or period of loss, it would suggest that I may have to adjust my fixed income position," he says.
Monaghan also uses BestFit that helps users determine the best distribution to use. Monaghan uses the program's ability to identify patterns in flows of data to compare the behavior of different currencies. "BestFit basically fits the market return data to a variety of types of distributions, giving me the ability to visualize what markets have similarities," says Monaghan.
Robert Abad finds @RISK useful for slightly different purposes. Abad works on quantitative analysis projects for Frank Fernandez, CEO of Global Emerging Market Advisors, L.P., a NY-based money manager. "When you can manipulate multiple variables, the model becomes more sophisticated," he says. "It allows you to make additional assumptions which take your analysis to another level than was possible by just using Excel's Add-in functions."
Abad, a former Brady pricing model builder for Merrill Lynch, says he uses Palisade's TopRank, a sensitivity analysis program, for analyzing bonds. If, for example, Abad is looking at a new bond to be issued with a 10% yield and he thinks the value is really higher, he would run the bond through TopRank at different yields to get a series of relative prices.
"As the model gets more complicated," says Abad, "you need @RISK to assess the effect of [multiple] variables." He puts all three assumptions in and @RISK provides a best and worse case scenario. "@RISK will automatically rank the correlations and do regression analyses for you," he adds. @RISK would be an excellent tool in any analyst's bag of tricks. Maureen Nevin Duffy, "Palisade Takes Add-in Science to New Heights," Derivatives Strategy, August 1996