Managing the Cost-per-trade at Inception
Post-crisis the collateral management and valuation process became increasingly complicated. The market observed a divergence in rates and shift from Libor to OIS for collateral discounting, affecting both fundamental curve stripping as well as basic risk-neutral valuation. The embedded optionality of Credit Support Annex (CSA) terms remained complex, especially for multi-currency CSAs which allow for collateral posting of different types of securities in different currencies, with each currency potentially requiring a separate discounting curve.
Valuation Complexity - Simplified
Built on Numerix CrossAsset analytics architecture, The Numerix CTD and collateral analysis solution is a tool to analyze CTD collateral based on the definition of the individual CSAs agreement entered using real-time market data. Once CSA terms are entered the solution automatically builds all appropriate curves and linkages between curves. Users can leverage the tool to analyze not only CTD collateral, but what may be cheapest at any point in time. The solution supports various currencies and collateral types, and covers the construction of OIS Curves, IR swap curves, Basis curves, XCCY basis curves and Cheapest-To-Deliver Curve – a blended collateral discounting curve that is optimized through the trade lifecycle among the various currency collateral curves. The solution can be leveraged by both buy- and sell-side institutions to analyze CTD collateral at any point in time over the lifecycle of a trade, helping to increase cost-saving opportunities, minimize funding costs and determine how trade valuations vary under different collateral choices.
FROM OUR EXPERTS
Numerix Video Blog
Using Cheapest-To-Deliver (CTD) Collateral for Accurate Derivatives Valuation
OIS Discounting - To Clear or Not To Clear?
Addressing the LIBOR Debate: The Role of LIBOR in the Valuation of Derivatives
Numerix Blog
OIS Discounting: The Increasing Complexity of Curve Construction
OIS Discounting: Facing the New Level of Complexity
Numerix Webinar
Impact of OIS Discounting - Valuation Approaches Re-examined
OIS Discounting impact on derivatives P&L and risk calculations: A case study
