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FINCAD’s Top 5 eBooks Help Firms Navigate Valuation and Risk Challenges
By Rob Garfield | February 14, 2017

In a market environment with low-yields and negative interest rates, investment firms are finding it harder than ever to generate returns. Best practices for overcoming these and other pressing challenges are tackled in five of our most popular eBooks, available on the FINCAD website.

In the pursuit of improved returns, many firms are using more sophisticated trading strategies involving derivatives and structured products. Unfortunately, their legacy systems are often ill-equipped to keep pace. Modern valuation and risk technology helps tremendously in this area. These modern systems can give firms the freedom and flexibility to quickly deploy new strategies, and enter new asset classes—without an expensive, time-consuming technology overhaul. Additionally, such systems provide transparency and a real-time view of risk, enabling firms to be proactive about risk management, all while meeting regulatory demands.

In our eBook series, we explain in more detail how you can navigate through a challenging market and regulatory climate to ultimately come out a winner. In order of popularity, the top five eBooks are summarized below. 

1. Uncovering Derivatives Hidden Risk

Multi-currency collateral management has become an integral part of overall risk management. This is particularly true as regulations push to collateralize the funding of derivatives, and require more derivatives to be central cleared. However, the increase in collateralization is making multi-currency derivatives strategies more complex.

In order to gain a comprehensive view of risk, institutions need to accurately incorporate the FX exposure from their multi-currency collateral management. The problem is that some firms are ignoring the FX basis risk inherent in the underlying collateral agreements for their multi-currency derivatives strategies.  

Here we explain why integrating FX collateral management into the derivative valuation and risk framework can help you achieve more accurate and comprehensive risk reports, better hedging and enhanced returns. 

2. Mastering Negative Rates

Once thought to be impossible, negative rates are now common in many European currencies. While we’ve seen near-zero interest rates on both sides of the Atlantic for several years now, things got really interesting in 2014 when the European Central Bank’s (ECB) benchmark rate, the Deposit Facility Rate (DFR), was set below zero in a direct stimulus measure.

Fast forward to March 2015, and a significant fraction, but still a minority, of Euro zone government debt had negative yields. Today, it’s a majority and the ECB has turned to quantitative easing.

In this eBook, we’ll discuss the pricing and risk management challenges a zero interest rate environment is creating for today’s financial institutions, and offer methods to overcome them.  

3. Advanced OIS Curve-Building Best Practices

OIS discounting has become fundamental to nearly all risk neutral derivative pricing methods. However, if a curve model is inaccurate, it can falsely suggest that an opportunity is mispriced in the market; good trading opportunities may seem bad, and bad opportunities good. This ultimately costs you time and money.

Because OIS is the standard funding rate in CSA agreements in both the OTC and cleared markets, implications of not adopting best practices are significant. Without accurate OIS curve construction, pricing, valuation and risk output are compromised.

Learn how to incorporate best practices for building and using OIS curves for pricing, valuation and risk management of multi-asset, multi-currency portfolios.

4. Best Practices for Maximizing Returns in Multi-currency Rates Trading

In the current market environment, it is particularly important to have the ability to identify and capture opportunities wherever they might be available. For this reason, accurate modeling of currency rates is required for financial institutions. 

As a multi-currency rates trader, being able to quickly adjust your curves and models to reflect new market dynamics is critical to maintaining a competitive trading advantage. Without this ability, you have an increased risk of mispricing trades and inaccurate hedging. Your capacity for seizing new trading opportunities is also limited.

In this eBook, we discuss key best practices that will help you maximize gains and achieve accurate hedging in a rapidly changing rates environment. 

5. How to Solve the Challenges of Structured Products

Buy-side firms are increasingly using derivatives and structured products to enhance returns and reduce risk. These instruments allow asset managers, insurance firms and pension funds to expand into new asset classes and geographies in the search for alpha.

However, many firms face challenges, such as having the appropriate analytics, systems and workflow to model, price, trade and risk manage these complex instruments. Without this ability, there is an increased risk of mispricing trades, inaccurate hedging and the capacity to seize new trading opportunities is limited.

This eBook will show how you can overcome the above challenges and enhance your performance with structured products using accurate risk and pricing infrastructure, and index expression language (IEL).

We have several more eBooks that are currently in the works. Be sure to check our resources section regularly to access our updated content.