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worst case curve parallel and twist moves

English translation: most unfavourable yield curve changes

GLOSSARY ENTRY (DERIVED FROM QUESTION BELOW)
English term or phrase:worst case curve parallel and twist moves
Selected answer:most unfavourable yield curve changes
Entered by: Nesrin

09:32 Apr 1, 2007
English language (monolingual) [PRO]
Bus/Financial - Finance (general)
English term or phrase: worst case curve parallel and twist moves
From a document about a commodity fund...

Scenario and Stress Testing:

- Used to identify potential ‘tail’ losses that VaR (Value at Risk) does not capture.

- Stress tests – ***worst case curve parallel and twist moves*** and taken for each metal using 10 years of historic data and applied to the current portfolio.

- Stress tests are combined to create scenarios showing ‘worst case losses.’

I can't make heads or tails of the sentence part between ***. Can anyone attempt to shed some light on this? Sorry if it appears to be more than one term, but I wouldn't know how to break it up into separate terms (which words belong with which).

Thanks a lot!
Nesrin
United Kingdom
Local time: 19:27
most unfavourable yield curve changes
Explanation:
A 'parallel shift' describes a change in the yield or forward curve where the yield for all parts of the curve (= all maturities) change by the same amount (up or down, e.g. an upwards move by 50bp). A 'twist' refers to a change in the yield curve slope, where the relationship between different parts of the curve also changes (e.g. 0-5 years up 20 bp, 5-10 years unchanged, 10+ years down 20bp).
'Worst case' refers to those parallel shifts or twists which have the worst potential result for the portfolio.

In the context of metals trading, 'curve' refers to the forward structure of prices.
Selected response from:

Ralf Lemster
Germany
Local time: 20:27
Grading comment
Thanks again Ralf for the very helpful explanation
4 KudoZ points were awarded for this answer



SUMMARY OF ALL EXPLANATIONS PROVIDED
4 +2most unfavourable yield curve changes
Ralf Lemster


  

Answers


10 mins   confidence: Answerer confidence 4/5Answerer confidence 4/5 peer agreement (net): +2
most unfavourable yield curve changes


Explanation:
A 'parallel shift' describes a change in the yield or forward curve where the yield for all parts of the curve (= all maturities) change by the same amount (up or down, e.g. an upwards move by 50bp). A 'twist' refers to a change in the yield curve slope, where the relationship between different parts of the curve also changes (e.g. 0-5 years up 20 bp, 5-10 years unchanged, 10+ years down 20bp).
'Worst case' refers to those parallel shifts or twists which have the worst potential result for the portfolio.

In the context of metals trading, 'curve' refers to the forward structure of prices.


    Reference: http://riskinstitute.ch/00012324.htm
Ralf Lemster
Germany
Local time: 20:27
Specializes in field
Native speaker of: German
PRO pts in category: 143
Grading comment
Thanks again Ralf for the very helpful explanation
Notes to answerer
Asker: Thanks Ralf!


Peer comments on this answer (and responses from the answerer)
neutral  Els Spin: Good grief! I have absolutely no idea what you're talking about. Good, ain't it? I love specialists; you can rely on them!
2 hrs
  -> Explain a complex medical concept to me, and you're bound to get the same result... ;-)
agree  rkillings: No better way to put it than the way it's worded in the source text. To explain 'parallel' and 'twist', you can refer to 'translation' and 'rotation' (analytic geometry). To explain 'curve', you can refer to the term structure of forward prices.
21 hrs
agree  Alfa Trans (X)
1 day 3 hrs
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