OTC Derivatives and Structured Products

The requirements for stress testing are becoming more and more stringent, leading to gaps in models and methodologies. Along with Finalyse risk and sensitivity analyses, we provide specific stress tests. Internal committee of our client desides on the type of  the stress test to exercise:

• Finalyse standard set of stress tests
• Regulatory stress tests: EBA, Solvency 2. 

We stress all market factors interest rates, credit spread, commo/energy, equity, liquidity, volatility as well as macro factor for illiquid instruments. Finalyse delivers those stress tests reports at the portfolio, fund or instrument level.

Key benefits:

• Identification of model enhancement possibilities
• Identification of portfolio dynamics and portfolio weaknesses in extreme but plausible events
• Scenario design
• Identification of concealed correlations in portfolio
• Meeting regulatory requirements (EBA, Solvency2,…)

The exact content and format of the report will be defined with the client on a case by case basis.

• Determine an acceptable range of differences between Finalyse prices and counterparty prices
• Compare Finalyse prices with counterparty prices
• Establish a list of challenged products with discrepancies (difference above a pre-defined threshold)
• Initiate discussion with the counterparty to reconcile the difference
• Investigate the source of the difference (assumptions, market data, models, reporting error, etc.)
• Come to a conclusion (review of assumptions or justification of the difference in assumptions)
• Document the full process for auditors or regulators

The process is fully transparent and Finalyse offers a detailed analysis of price challenges. The current standardized challenge reports include the following items:

• Deals with a difference exceeding the required threshold
• Largest differences with counterparties
• Historical tracking of reconciliation process

The reporting tool can be customized to the client’s needs.

This service enables to capture the marginal contributions of a specific structured note to the Solvency II stress tests. As such, the (re)insurer can objectively assess the impact of a prospective investment on its capital requirement, that can be then aggregated in the overall results of the stress tests on the remaining parts of the balance sheet.

Finalyse calculates Synthetic Risk & Reward Indicators (SRRIs) of UCITs, in accordance with the CESR documentation of December 2009 (CESR/09-1026) - Methodology for the calculation of the synthetic risk and reward indicator. Based on the UCITs termsheets, Finalyse performs the historical simulations and all necessary calculations to deduce an SRRI figure. Any type of product is supported and the methodology is fully transparent. The delivery method is at the discretion of the client.

Delivery of specific performance and risk figure reports that have been agreed upon with the client. Finalyse delivers those reports at the portfolio, fund or instrument level. A plausibility check is performed by Finalyse by comparing the evolution of each figure with past results. In case of abnormal evolution, Finalyse conducts a sanity check of the calculation (ensuring that all needed data are consistent) and provides a warning to the client in case the figure is validated.

Finalyse offers valuations based on IFRS 13 standards and provides you with the appropriate level of documentation for your disclosure (IFRS 7) and your auditors. We respect fair value principles and follow guidelines from IVSC. Working together with our colleagues from the risk advisory team, we can help you with being compliant with IFRS 9 and 17 requirements.