market data day 23/03/2011 - session 5 - managing valuation risk
DESCRIPTION
TRANSCRIPT
MANAGING VALUATION RISK
MARKET DATA DAY
MARC SOMMERMOSCOW, 23 MARCH 2011
INTRODUCTION
WHAT HAPPENED
“At least 50 per cent of hedge fund failures were due to identifiable operational problems”
Capco, 2003
“A full 90 per cent [of funds] said operational due diligence was a top priority for investors.”
Rothstein Kass, 2010
2008: Nothing had changed so far, and everyone was suffering …
NOWADAYS
Institutional investors are now quizzing their administrators over two key points:
The existence of assets and
The value of assets
THE WORLD HAS CHANGED
NOW AND THE FUTURE
THREE RECENT CHALLENGES FOR PRICING AND REFERENCE DATA
WHAT IS VALUATION RISK?
DEFINITION
Evaluations present a professional opinion of the market value of a security at a given point in time,
based on the fundamentals of each security with reference to available credit risk and trading information
OUR SOLUTION INTEGRATION WITHCUSTOMER WORKFLOW
Thomson Reuters Pricing Service
Prices are put through tolerance checks The underlying methodologies used to calculate the prices are
made available to the client. Pricing evaluators are on hand to provide insight into exactly how
the market inputs support the price.
SCHEMATIC WORKFLOW
New bond issue
New bond issue
ModelledModelled
Hand pricedHand priced
Market quotesMarket quotes
Benchmark yield curve
Benchmark yield curve
FilteringFilteringRelative
value analysis
Relative value
analysis
SpreadSpread
TRPS evaluation generated
TRPS evaluation generated
Pricing methodology
Pricing methodology
EVALUATION PROCESS
MARKET MONITORING
Evaluators constantly review the pricing
Research from the investment community
Primary market
CDS market Network of market contacts
Financial press Ratings actions
Electronic news alerts Tolerance reports
Interactive challenge process
METHODOLOGY EXAMPLE:HIGH YIELD BONDS
PRICING QUALITY PROCEDURES
FAS 157 (IAS 39)
FAS 157 – VALUATION TECHNIQUES
QUESTIONS?