NAB's loss is SuperDerivative's gain as spotlight falls on options pricing
23 January 2004 | 601 views | 0
SuperDerivatives, the benchmark pricing system for currency options, has reported unprecedented demand for its revaluation (reval) service following the events which are reported to have occurred at the National Australia Bank.
"Over the last week, we have been inundated with requests for more information on our reval services," says SuperDerivatives' chief executive David Gershon.
"These have come from both front- and back-office managers. The level of interest surpasses even that which we saw after the Allfirst debacle in 2001. Such events force users to check the value of their portfolios and makes them realize the importance of an independent and accurate market reval service. SuperDerivatives is able to provide this for all option classes on all currencies. Furthermore, we can do this for any size portfolio," he adds.
SuperDerivatives' reval service is not limited to clients who use its award-winning pricing system. It is available to anyone. SuperDerivatives sees this as part of its mission to improve transparency in the options industry. Access to the reval service will help all banks accurately monitor their FX derivative risk.
"Our reval service is available in several different formats. It can be done daily, weekly or monthly, or whenever the client wants," says Gershon.
The company believes that accurate revaluation is now the key issue for the industry to address. In the past, risk managers have been satisfied to simply use a theoretical value to revalue their option exposure. This is no longer considered adequate and will soon effectively be prohibited under international generally accepted accounting practices and the imposition of standards such as FAS 133 and IAS 39.
Option users have to face the problem that most systems cannot actually produce accurate market prices for all options on all currencies. This is regardless of whether or not they have top-quality data fed into them, such as market quotes for implied volatility. If the models that power systems are inadequate, there always remains the strong probability that they will return a wrong value.
This leaves many institutions at threat from the misuse of derivatives, a situation that is patently absurd, given the fact that FX options are one of the most, if not the most powerful tools to mitigate currency risk.
SuperDerivatives customer base ranges from multi-license global investment banks, such as Citibank, JP Morgan Chase, Merrill Lynch, Societe Generale, Commerzbank and Mizuho, to corporate treasuries, such as IBM, Alcatel, Xerox, Ford and Coca-Cola Amatil, as well as leading accountancy firms and auditors through to hedge funds and single users funds companies.