Input Sensitivity Testing

Input sensitivity testing, often part of stress testing, measures how changes in model inputs affect the final result. If a small change in the interest rate or volatility input causes a massive, unrealistic change in the output, the model is likely too sensitive.

This testing identifies where a model is most vulnerable to error. For crypto derivatives, where inputs can be extremely volatile, this testing is crucial to ensure that models remain stable and safe for decision-making.

It provides a deeper understanding of the model's reliability and helps in setting better limits and safeguards for the trading strategy.