Analytics Adapts to New Realities

Terry Flanagan

Shift toward vanilla instruments dictates ‘closed-form’ pricing solutions.

A shift from complex OTC instruments toward standardized ones is hiking demand for more precise pricing tools to value the instruments.

“There is also a market trend shifting from complex products to more vanilla instruments which are valued with closed forms solution while complex products are valued numerically,”  Yuxin Mao, head of marketing, Pricing Partners, told Markets Media. “Hence, solutions need to adapt to closed forms to have acceptable speed for vanilla instruments.”

Pricing Partners’ solutions are used to better manage risks, perform transparent and accurate valuation on OTC derivatives and structured products, implement appropriate investment decisions, and comply with the stringent regulatory requirements.

Pricing Partners, a provider of OTC derivatives pricing analytics, mathematical models and independent valuations, has upgraded its core product to provide analytical tools to compute large volatility surfaces from option data provided by systems like Thomson Reuters 3000 Xtra or Eikon.

“In a constantly changing marketing landscape, major vendors are turning to the few specialists capable of delivering accurate pricing models on complex products,” said Mao. “Companies like Pricing Partners that have managed to establish partnerships with major actors like Misys and Thomson Reuters are strengthening their positions on pricing analytics.”

Pricing Partners’ solutions are used by investment banks, buy side firms, hedge funds, financial departments, trading rooms and audit firms.

Its proprietary financial library, Price-it, covers all major asset classes: interest rates, equity, inflation, credit, foreign exchange, commodities, life insurance and hybrid products.

“The demand for valuations on complex products is practically driven by large existing reserves of traded complex products that still sit in trading books,” said Mao. “There is also a high demand for pricing counterparty and liquidity risks and large asset coverage from providers to be able to answer the full spectrum of independent valuation.”

The Price-it Library contains large sets of derivatives products templates, derivatives pricing models, numerical methods, and calibration parameters.

“The Library takes apart the valuation process of a financial product into various interchangeable and independent components,” said Mao.

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