The What-If Analysis: an Application of the Sensitivity Analysis to Financial Derivatives

For some time now, the issue of cost-benefit analysis has been one of the major challenges facing researchers and scientists around the world. In the current economic context of growing competitiveness and dynamism, it is essential to know the impact of financial policies or programmes that may be difficult to measure or predict. Sensitivity Analysis is a set of techniques that can be used to examine the degree of uncertainty in cost-benefit analysis (CBA) and how the latter affects the results of a study. This technique is based on the evaluation of a series of possible scenarios and the verification of the final results obtained with the variation of the individual variables. In this way, it is possible to show how these solutions are reactive and at the same time sensitive to the variations of the values of specific model’s input variables. This paper presents the “What ... If” analysis applied to the financial field, in particular to Credit Derivatives.