This is just a small general model I have developed to prepare for a customer project.
There are two ways to model asset strategies. One is to simulate risks by Monte Carlo simulations as I did here. Very easy!
Another is to use financial math to approximate the risks - which is not that easy and therefore I didn't do it here. However, not using Monte Carlo simulation would allow us to use the range function in order to identify an optimal portfolio.
So, if there is anybody out there who would like to provide the formula to calculate the impacts of volatility on yields please share this on KNOW-WHY.NET. I'd happily help with the modeling.
BTW: it would also be possible to include regulations like BASEL...
The Monte Carlo simulation (2000runs) shows for a chosen portfolio the likelihoods of the different profitabilities.
The spaghetti plot shows the different possible scenarios from which we can pick one (the red one) ....
... to see in the diagram how the different products performed.