Design strategy summary

There is no escaping the need to understand the semantics of instrument valuation.
The challenge of doing this in a consistent manner across heterogeneous systems is
probably the biggest single issue in building a VaR system. In large part, the design
presented here has been driven by the requirement to make this as easy as possible.
To summarize, the following analysis has to be made for each of the source systems:
1 For each instrument, write down a formula that expresses the present value in
terms of PAVs.
2 Compute the sensitivities of the present value with respect to each of the PAVs.
3 If the Taylor-series expansion of the present value function in PAVs has coefficient
ci with respect to the ith PAV, its first-order sensitivity to changes in the PAVs is
the same as that of a position in amount ci in the asset corresponding to the PAV.
Thus the sensitivities with respect to PAVs may be interpreted as DEAFs.
In addition, we need to map the risk factors keys in each source system to appropriate
discounting and volatility keys in the VaR system.