SuperDerivatives, the benchmark for derivatives pricing and the leading provider of multi-asset front-office systems, risk management, revaluation and online options trading solutions, today announced it will provide the liquidation price (or 'exit price') of all derivatives held within clients' portfolios.
Liquidation prices for the time of calculation or for any retroactive dates will be supplied as part of SuperDerivatives' independent Portfolio Revaluation service.
The enhanced offering addresses the need for valuations of portfolios that might be liquidated and aims to provide a fair value disclosure for investors that foresee a liquidation event. The demand for liquidation price-based valuations has been amplified during the recent financial crisis, as well as by specific regulatory requirements such as FAS 157.
SuperDerivatives will use its benchmark model for bid and ask prices to calculate the liquidation price for all types of financial portfolios, including those that contain illiquid OTC derivatives. This addresses many daunting challenges facing the industry today by:
- Accurately calculating the unique 'bid - offer' spread for each specific structure, replicating actual market 'entry' and 'exit' (liquidation) prices;
- Adapting spread levels to changing market conditions based on inter-product correlations - a need that has been dramatically demonstrated during the current crisis;
- Assessing a total portfolio's collective impact on liquidation price.
Under the terms of FAS 157, firms are required to define the exit price of all instruments to calculate fair market value or "…the price that would be received to sell an asset or paid to transfer a liability." Additionally, during times of distressed market conditions, the exit price is the only price that matters to the portfolio manager looking to redistribute risk exposures.
"The recent market turmoil has highlighted the need for accurate, independent valuation. Determining the liquidation price of derivatives, necessary for both regulatory compliance and to instil confidence in the investing community, can only be achieved with a combination of sophisticated modelling techniques and market data expertise," said Dani Weigert, head of revaluation services, SuperDerivatives. "Todday's financial crisis has proven that none of the available models, or 'standard analytics' can be used for universally calculating the fair value of options - and there is no off the shelf model for determining bid-ask spread. SuperDerivatives' liquidation price-based valuation is therefore unique and cannot be generated by other revaluation providers."