Infinitesimal sensitivities, computed as derivatives of pricing functions, are useful to find high-frequency hedge ratios. However, they are less useful for the purpose of optimising 2-week VaR, especially if one includes shocks from stressed periods, as is required for applications to margin...

The industry is currently seeking to evolve collateral models based on Value-at-Risk to include Wrong-Way-Risk (WWR) add-ons. A parallel trend is to require risk managers to possess Reverse Stress Testing (RST) tools to identify extreme but plausible scenarios and hedge them pro-actively. Use...