A German regional state bank continuously emits structured equity derivatives. The bank wants to change from back-to-back hedges per single trade to risk based macro hedges. Therefore, it developed an inhouse pricing library. The library is intended to be integrated in the Front Office system and to be used for ongoing quotation of the own issues.
- Validation of bank’s Monte Carlo pricing
- Analysis and parametrisation of P&L Explain
- Benchmarking of dividend model
- Definition of quotation rules
- Pricing validation: Comparison with RIVACON pricing library
- Testing of pricing stability and consistency
- Validation of sensitivities
- Proposals for parametrisations of pricing library
- Proposals for quotation rules
- Documentation of results
The first milestone was the successful validation of the pricing library by an independent tool. Moreover, the pricing of relevant key figures proved to be stable. Hence, both reliable risk figures as well as robust quotation rules could be ensured. Finally, the hedging of the own issuance business was changed from single trade to macro level reducing associated costs significantly.
Relevant Skills / Tools
- Independent pricing library for structured derivatives
- Programming languages: C++, Python (Jupyter-Notebooks)
- Know-how in Front Office system Front Arena