The Client
The client is a global financial institution with operations in over 50 countries and a customer base exceeding 10 million. As a participant in the over-the-counter (OTC) derivatives market, the client transacts with dealer banks and is subject to Credit Valuation Adjustment (CVA) charges on these derivative positions.
The Challenge
The client wanted to gain a better understanding of the mechanics of CVA pricing, especially on transactions involving multiple currencies. The firm’s widening credit spread dramatically increased CVA charges levied by dealers. Therefore, the client wanted more transparency and a second opinion on these CVA charges.
Why Quantifi?
- Quantifi’s reputation for best-of- breed models
- A team of industry professionals with years of direct experience in top-tier financial services firms
- Counterparty risk solution modelled on systems used by banks – setting the standard in best practices for counterparty risk management and the pricing, management and trading of CVA
- Sophisticated Monte Carlo simulation engine capable of modelling all risk factors, including correlations
- Responsiveness – ability to turn around results within a matter of days
- Foundation for enterprise counterparty risk management and full Basel III compliance
- Significantly reduced IT costs by saving on time and resources
“The client wanted to gain a better understanding of the mechanics of CVA pricing, especially on transactions involving multiple currencies.”
The Results
The client requested Quantifi to calculate CVA charges on 880 derivative transactions. Quantifi generated a matrix of CVA prices, expressed as an upfront charge and basis points in a matter of days, in time for the client’s internal presentation to senior management. Quantifi also analysed the differences between its results and the dealer quotes, helping the client to better understand CVA pricing dynamics. The client is now able to challenge counterparties on CVA pricing as well as more efficiently manage credit capital.
Download the complete case study to see how Quantifi was able to support the global financial institution with the mechanics of CVA pricing.
