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Structured Testing

A comprehensive testing framework for financial products

Confidence that pricing is correctly, reliably and efficiently performed can only be achieved through a comprehensive testing framework. Testing new product pricing models for plausibility is not enough to guarantee that pricing is correct.

Sound pricing requires a focused and structured testing framework including:

  • A thorough examination of all parameters required for each model.
  • Demonstration of the limitations of the model and numerical methods applied.
  • Determination of the calculation speed and precision trade off.
  • Regular testing of IT systems and data inputs for systematic errors.
  • Stress-testing of the model and parameters including extreme market conditions.

Much more can be gained through implementing a sound testing framework than just promoting good risk management:

  • Assure price quality
  • Identify risky product behaviour
  • Uncover systematic pricing errors
  • Understand modelling weaknesses and limitations
  • Describe precision and efficiency trade-off
  • Safely introduce new products
  • Avoid costs, including reputation risk, from miss-pricing
  • Support active hedging strategies
  • Provide pricing quality even in instable market conditions

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Related services

  • Risk & Performance Management

Find out more

  • Structured Testing
    A comprehensive testing framework for financial products
  • Structured Products Due Diligence
    Staying on the safe side