Markit, a leading, global financial information services company, today announced its Portfolio Valuations service now provides independent valuations for power reverse dual currency notes (PRDCs).
PRDCs enable an investor seeking a better return and a borrower in a different country seeking a lower rate of interest to use the interest rate differential between the two. The PRDCs covered by Markit will include several currency pairs, pay-off structures and call and redemption features.
PRDCs are complex to value because they are typically leveraged, have bespoke pay-offs and pay foreign currency yields in the investor's domestic currency. In addition, they can have embedded digital and barrier option features, which further complicate price calculation. Markit uses its industry-leading simulation platform, calibrates and validates its calculations using a range of data and employs industry-standard models to value the foreign exchange (FX) and interest rate (IR) components of the structure, using the full FX option and IR swaption volatility surfaces and FX-to-IR implied correlations embedded in PRDCs.
Nigel Cairns, Managing Director and Global Head of Analytics and Portfolio Valuations at Markit, said: "Clients, driven in part by regulatory changes, are increasingly supplementing their dealer marks with independent pricing sources for complex, illiquid products like PRDCs. Combining the proven Markit Analytics simulation framework with high-quality datasets and the tools within our Portfolio Valuations service gives us an unprecedented opportunity to provide cutting-edge analytics to the buy-side. We have the ability to provide both the gold standard in pricing individual instruments across exotics and vanillas as well as quantify risk at the portfolio level."