What Is the Difference between Sensitivity Analysis and Scenario Analysis?
Sensitivity analysis examines the impact of a single variable's change (e.g. discount rate) on the output (valuation), holding all other variables constant, to identify key drivers. Scenario analysis models the impact of simultaneous changes in multiple variables (e.g. low growth, high inflation, and high competition) on the valuation.
Scenario analysis provides a more holistic view of risk by modeling plausible future states, which is more relevant for crypto's complex, multi-variable risk profile.
Glossar
Sensitivity Analysis
Variance ⎊ Sensitivity analysis within cryptocurrency, options trading, and financial derivatives quantifies the impact of fluctuating inputs on model outputs, primarily focusing on price discovery and risk exposure.
Analysis
Valuation ⎊ Analysis within cryptocurrency, options trading, and financial derivatives centers on determining the fair price of an asset or contract, often employing models adapted from traditional finance but incorporating the unique characteristics of these markets.
Scenario Analysis
Model ⎊ Scenario analysis employs quantitative models to simulate the simultaneous movement of multiple market factors, such as asset prices, volatility surfaces, and correlation coefficients, under specific hypothetical conditions.
Scenario Analysis Models
Simulation ⎊ Scenario analysis models are quantitative tools used to simulate potential outcomes of a portfolio under various hypothetical market conditions.