triCalculate adds KVA analytics for pricing derivatives trades

PUBLISHED BY:
triCalculate

DATE:
2017-11-16

NEX Optimisation, which helps clients reduce complexity and optimise resources across the transaction lifecycle, announces today that it has introduced capital valuation adjustment (KVA) analytics to its triCalculate XVA (Valuation Adjustment) service. KVA calculations determine the lifetime costs of capital as part of the pricing of an OTC derivative.

Pricing trades correctly is critical to ensuring accurate credit risk, counterparty exposure and funding management. When pricing a trade, market participants need to ensure that enough profit is generated upfront to cover the lifetime regulatory capital costs incurred by the trading operation. The required amount of upfront profit is KVA, which is calculated in triCalculate through the generation of expected capital profiles. The KVA service helps firms understand the capital costs an OTC trade consumes over the portfolio lifetime.

Clients use triCalculate to generate independent trade and netting set level XVA calculations as well as risk sensitivities. They can access the platform to assess the KVA implications of a trade before execution without delaying trading activity. The launch of this service follows the addition of margin valuation adjustment analytics to the service in May 2017, ensuring triCalculate remains at the forefront of XVA analytics.

Martin Engblom, co-CEO of triCalculate, said: “KVA can have a significant impact on derivative pricing since capital charges remain even when market risk is accounted for in the trading book.  With regulatory pressures mounting and modelling challenges around pricing KVA, we continue to develop functionality to support complex market needs with the addition of advanced yet efficient KVA calculations to our secure, web-based triCalculate service.”

triCalculate is NEX Optimisation’s centralised, web-based service that provides independent trade valuations and XVA risk calculations for OTC derivatives using transparent, consistent models across a wide range of asset classes and business units. Utilising state-of-the-art computer technology and the Probability Matrix Methodology, triCalculate generates results via a secure, web-based interface in minutes instead of hours. This advanced modelling improves accuracy and reliability and ensures the effective management of credit risk costs with minor resource investment.