Trump vs Clinton: Election Scenario Analysis
Months after the UK’s vote to leave the EU (Brexit), prices in risk assets are still swaying from one Article 50 headline to the next. In the US, November 8 presents a similar risk management challenge to market participants because of the outcome of the long-awaited and heavily-contested US Presidential Election.
Not unlike Brexit, the market has once again predicted one outcome as more likely than the alternative, the question of how markets might react, and the subsequent resulting price changes if the unlikely prevails. Below, we present an example of estimates, as we did for Brexit, for either outcome of the vote:
|Asset Class||Clinton Wins||Trump Wins|
|US Bond Prices||-1%||2%|
Please contact Consulting or your Imagine representative for help with constructing your own scenario analysis.
The stresses described in this blog post illustrate one possible scenario and are intended to be used in general as guidance towards risk management of market events.
In times of stress in the markets, not only does volatility increase for individual assets, cross-asset correlations can increase dramatically as well. This results in a “double whammy” for a typical portfolio because the portfolio’s volatility increases due to both effects.
Those responsible for maintaining a margin system often feel that they are drowning in data management issues. In part two of this series we discuss ways to make margin calculations far more efficient and meet the firm’s need for answers in real-time.