Valuation Service and Pricing Model Validation

Use our valuation services or let us verify yours

For instruments traded with sufficient liquidity, a quoted market price renders a discussion about “value” unnecessary. Quoted prices are intertwined with models based on the risk-neutral valuation concept and an absence of arbitrage: Models are used to produce a price, but observed prices are also used to calibrate those models.

But what about situations where no market prices can be observed? Does an investor’s preference have an impact on the price? Can one derive a pricing model for such a case, or choose between different pricing models competing for the job? What are the assumptions about the choice of variables used by the pricing algorithm and about the dynamics of the underlying factors?

Our Approach

With our valuation services we have developed a setup for testing pricing and risk models that allows the detection of hidden model problems for derivatives and structured products. It can be fine tuned to reflect a firm’s short or long term hedging strategy and reveals P&L bleeding and other problems that cannot be detected by classical model validation techniques.

Our Experience

  • Monthly valuation of Insurance Linked Note to all investors throughout the lifetime of the note (several years)
  • Validation of derivative pricing models for various asset classes including multi-factor and stochastic volatility models
  • Development of pricing libraries used by financial services firms for benchmarking and model validation