The second method computes value at risk directly by building histograms from simulated price movements. Model Calibration Utilities Risk Kit implements 15 different multi-factor interest rate models for either spot or forward interest rates. Multiple interest rate models are supported within a portfolio of multiple currencies. The QES model calibration engine uses multivariate kernel density estimation, principal components analysis, and polynomial regression techniques to estimate and provide efficient representations for drift, diffusion, and market at risk parameters. The Risk Kit interest rate models and calibration techniques are discussed in more detail in Technical Note 1 .
Transition probabilities are available from credit agencies.
Up to 5 different transition probability tables, each having at most 18 credit ratings can be modeled by Risk Kit. The techniques used in integrating the credit model with the interest rate models are discussed in Technical Note 2 . Advanced Simulation Technology Risk Kit uses simulation to generate an interest rate path given a particular interest rate model based on several pseudo random and quasi random algorithms. Risk Kit can generate random vectors up to 5000 dimensions. The techniques used in generating random numbers are discussed in Technical Note 3 .