Simulations
Simulations allow users to explore how assets, strategies, and portfolios may behave under adverse or hypothetical conditions.
They are designed to support preparation and risk awareness rather than prediction.
What Simulations Are Used For
Simulations help users:
Evaluate potential downside under stress conditions
Understand sensitivity to volatility and liquidity changes
Test the impact of exposure concentration
Compare portfolio configurations before reallocating capital
They provide a controlled environment for assessing risk without real-world execution.
Types of Simulations
RAX supports multiple categories of simulations, including:
Market stress scenarios
Liquidity contraction scenarios
Volatility spike scenarios
Correlation and contagion scenarios
Each simulation focuses on a specific risk dimension.
How Simulations Are Generated
Simulations are generated using a combination of:
Historical market behavior
Modeled stress conditions
Current portfolio composition
Exposure and correlation data
They are recalibrated as market conditions and portfolio structures change.
Interpreting Simulation Results
Simulation outputs should be interpreted as scenarios, not forecasts.
They describe how a system might behave if certain conditions occur, not what will happen.
Results are most useful when compared across different configurations or strategies.
Simulations and Model Confidence
Simulation reliability depends on data quality and scenario coverage.
When model confidence is lower or anomalies are present, simulation outputs should be treated conservatively.
Using Simulations in Decision-Making
Simulations are particularly useful when:
Evaluating new allocations
Increasing exposure to a protocol or strategy
Responding to elevated risk or alerts
Designing allocation constraints
They complement, but do not replace, real-time monitoring.
Limitations
Simulations do not:
Capture all possible market outcomes
Predict black swan events
Replace real-time risk controls
They are tools for preparation, not guarantees of safety.
Summary
Simulations provide a structured way to explore potential risk outcomes before committing capital.
They support more deliberate and resilient decision-making in complex DeFi environments.
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