SAS Institute Alert Note SN-009295

From: SAS Technical Support (tsdlist@unx.sas.com)
Date: Tue Apr 22 2003 - 07:16:57 EDT

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    SN-009295 ***Alert Note***

    Pricing using the quadratic value approximation may be incorrect

    Product: Risk Dimensions
    Component: General Product Issues
    Priority: ALERT

      If the value of a risk factor involved in the quadratic approximation is
      within 1e-14 of its quadratic approximation center value, then the
      pricing from a quadratic value approximation (specified using the
      VALRECORD=QUADRATIC option on the INSTRUMENTS statement) for a market
      state will be incorrect. Any analysis which depends on such an
      incorrect pricing will also be incorrect.

      To circumvent the problem, avoid using a VALRECORD=QUADRATIC instrument
      type. Instead, explicitly define a pricing method which values the
      instrument via a quadratic function approximation. Then define a
      non-quadratic instrument that uses this pricing method. Parameters for
      the quadratic expansion can be stored as instrument variables.

    Keywords:
      quadratic form instruments analysis sensitivity simulation scenario
      delta normal monte carlo gamma approximation incorrout incorrstat
      valrecord
      pricing using the quadratic value approximation may be incorrect
      009295 9295

    SAS Note Revised On: Mon, 3 Feb 2003

    System Version Reported Version Fixed

    AIX 64 bit 3.2
    AIX 64 bit 3.3
    AIX/6000 3.1
    AIX/6000 3.2
    AIX/6000 3.3
    Compaq Tru64 UNIX 3.1
    Compaq Tru64 UNIX 3.1
    Compaq Tru64 UNIX 3.2
    Compaq Tru64 UNIX 3.3
    HP-UX Operating Systems 3.2
    HP-UX Operating Systems 3.3
    HP-UX 64 bit 3.2
    HP-UX 64 bit 3.2
    HP-UX 64 bit 3.3
    Solaris 3.1
    Solaris 3.3
    Solaris 64 bit 3.2
    Solaris 64 bit 3.3
    Windows NT 3.2
    Windows NT 3.3
    Windows 2000 Datacenter Server 3.3
    Windows 2000 Professional 3.3
    Windows 2000 Server and Advanced Server 3.3
    Windows 95 3.3
    Windows 98 3.3
    Windows ME 3.3

    No Fixes Available

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