How Does Fincanva Handle Bankruptcy Events in Simulations?

In Fincanva, ensuring the realism and reliability of investment simulations is a top priority. Managing bankruptcy events — both at the portfolio and model levels — plays a critical role in maintaining simulation integrity. This article explains how bankruptcy is handled, why it is necessary, and what users should expect when it occurs.

Bankruptcy ay the Portfolio Level

Trigger condition: Bankruptcy at the portfolio level occurs when the total portfolio capital falls below 10% of the initial starting capital.

Rationale

Allowing capital to fall too far risks producing negative balances, which are incompatible with internal systems (equity calculations, performance reporting, etc.). The 10% threshold is aligned with common real-world practices such as margin call levels and ensures simulation stability.

Behavior After Bankruptcy 

• All open positions are closed immediately.

• The simulation continues until the originally set end date.

• External forces such as inflation, interest accruals, and taxes are still applied to the remaining capital.

• No new trades or positions are opened after bankruptcy.

• The equity curve becomes flat, except for external adjustments.

Final Note

Bankruptcy at the portfolio level is a permanent event. Once triggered, the portfolio cannot recover or resume trading during the simulation

Bankruptcy at the Model Level

Trigger Condition: Bankruptcy at the model level occurs when the capital allocated to a specific model falls below 10% of its allocated starting capital.

Rationale

Individual models must maintain realistic balances to preserve the integrity of performance calculations and risk analysis.

Behavior After Bankruptcy

• All active positions within the model are closed immediately.

• The model stops trading temporarily.

• The model can potentially restart:
  If future rebalancing conditions are met, the model may reopen new positions later in the simulation.

Final Note

Unlike portfolio bankruptcy, model bankruptcy is temporary. Models can recover and resume trading if conditions allow (like future portfolio rebalances).

Handling Sudden Negative Capital

Special case: If extreme leverage or sudden market crashes cause the portfolio or model capital to drop directly into negative territory (e.g., from 12% to -5% in a single day), without first hitting the 10% threshold:

• The simulation is immediately marked as FAILED.

Important Distinction

• This is not a bug.

• Simulation failures due to extreme events are rare but expected when using aggressive leverage or highly volatile assets.

• They represent the natural limits of realistic simulation environments.

Quick Summary