Hedges Hedging is a cornerstone of responsible financial management. Many risks must be hedged against, including changes in:

Government: base interest rate, trade tariffs, subsidies, tax rates and exemptions, economic policy, etc.

Society: inflation, consumer confidence, brand confidence, social acceptability, etc.

Business: competitors' product launches, share and bond offerings, takeovers and mergers, partnerships and licensing deals, exercising of options, etc.

These are events that are outside a business' control, controlled by other entities in the space, or reflecting an accumulation of small-scale behaviors. They are winds that may buffet a business, and hedging is the activity of anticipating and insuring against such perturbations in the business environment.

The role of modeling Financial systems are captured well by equations and rules, from taxation law to macroeconomics. Our modeling system is well-suited to the easy expression of many such aspects of financial reality. Our simulator can track a situation by stepping forward in time, tracking the progress of the individual variables and their interactions. This allows proper account to be taken of nonlinear and discontinuous behavior (such as when thresholds are passed) in the situation's behavior for which it would be difficult for an analyst to derive closed-form algebraic solutions. So, in the context of some anticipated scenario, the performance of some financial choice or position may be evaluated.

Risk discovery We generate a large range of possible futures, according to the capabilities of the model and the concerns of the financial analyst. We simulate the financial choice against each of these, using distributed computing for speed. Multiple sets of simulations may be performed as different models are used: if it is not clear which economic theory is valid for the situation, the results from multiple models, each corresponding to a different theory, may be valuable. Then, we identify the scenarios that produced the worst performance for the financial choice, and present a range of these to the analyst.

Benefits The analyst can use our interactive graphical environment to explore the performance of some financial choice in the context of a range of scenarios, understanding when it performs well and when it performs badly, and how badly. Thus, assurance can be gained that attempts to hedge would be successful, and insight can be gained into where attempts to hedge require improvement. The analyst's assurances, warnings and recommendations can then be made with a clear, confident view of the real facts, having been well-informed by the large-scale simulation upon which they stand.