Derivatives Pricing Advisory
“Bringing the Excellence of the Big Banks to the Smaller Players”
Pricing. Our proprietary pricing technology allows us to price virtually every path-dependent and/or callable structured note (or swap) in all the major currencies. We also develop and implement tools specifically designed to calculate risk sensitivities and perform scenario analysis for derivatives portfolios. A typical client request might be an asset manager asking for the “fair evaluation” of a Callable 10Y EUR CMS Steepener before executing a transaction with an investment bank.
Buy-side consultancy. Investment Banks often tend to push their clients toward high margin exotic products even if this is not strictly necessary for the client’s investment objectives. On the other hand, our remuneration is not related to any transaction the client might do indeed we are in the position to always suggest the most appropriate solution in terms of available products. Hidden risks. Often the price is not the only variable of interest when it comes to choose among different products. Many of the cheapest alternatives available to manage interest rate or exchange rate exposure will embed hidden risk. Products such as Zero-Cost Collars or CMS Steepeners are clear examples of cheap solutions that caused relevant losses in the past to those investors that were not fully aware of the risks they were bearing. One of the key aspects of our job is to make our clients aware of all the subtle dangers that can lurk in the financial products they manage, putting them in a position to choose the most appropriate risk profile for their specific needs.
Our proprietary pricing technology. Depending on the derivatives underlying assets and payoff, we select the most appropriate model for the underlying dynamic. We use a modified version of the Libor Market model for fixed income products and a SABR based stochastic volatility model for equity products. All our models are calibrated regularly on available market data in order to match the prices of liquid traded instruments. We constantly work on our analytics to keep them theoretically up-to-date and bug free. We want to stick to a business model where our clients are never left alone dealing with modeling issues or results interpretation.