28 April 2017
Services
 
 

 

The credit derivatives market is booming both in terms of issues and trading volumes and in terms of product innovation. The best market practice mixes advanced multiname stochastic modelling with risk methodologies connected to the Basel II requirements, paving the way to the convergence of both worlds. Zeliade unique expertise also mixes the 2 cultures.

We provide advanced pricing and valuation services of credit contingent claims with the ability to develop in record time the pricing of a new product within a consistent valuation framework including sound sensitivities to its main risk factors. We can also typically perform hedge simulations or scenario-based risk assessment at the portfolio level.

Among our achievements are:
an improvement of the widespread Random Factor Loading model to capture the risk specific to super senior tranches
progresses in algorithmics to price and calibrate multiname factor models in record time
innovative bespoke pricing methodologies with a focus on consistency:
 
  • between the bespoke and standard indexes portfolios
  • across different classes of multiname claims like exotic CDOs and CDO2s

CASE STUDY

BlueCrest Capital Management LP

BlueCrest Capital Management LP, a leading European hedge fund manager with approximately $14.5 B under management, needed to put in place analytics for its Multi Strategy Credit Master Fund, a new credit hedge fund activity. Zeliade implemented a state-of-the-art multi-name credit library providing pricing and risk analysis for multi-name credit portfolios.

Particular challenges for this project were due to the tight time constraints. The first challenge which was actually very motivating for our team, was the overall performance requirement in terms of speed and accuracy. Traders needed to be able to analyze scenarios in real time while negotiating with counterparty. Advanced functionalities for risk analysis on a multi-name credit product typically require the calculation of 10,000 indicators that can easily take several minutes on a regular PC, even with recent algorithms. Our team worked very closely with BlueCrest's highly reputed Quants to solve this steep requirement. They managed to achieve this goal by devising a shrewd mathematical algorithm that reduced computation time by a dramatic factor. This enabled traders to compute deal scenarios in real time, even without the use of a grid computation system.

Another great challenge was to integrate Zeliade multi-name library within BlueCrest main analytics library. This was achieved in record time due to a sound architecture on both sides.

The overall project was completed in a record time of 3 months, less than what was originally planned, and also given additional requirements that came during the course of the project. This could only be achieved through the versatility of our team and the outstanding quality and commitment of BlueCrest's team.

Client Testimonials :
Farid Amellal, Co-Head of the Multi Strategy Credit Strategy, from BlueCrest Capital Management LP
“Our business has very high standards, and we expected the same from Zeliade. We foremost appreciated their result driven approach. They could only do so by assembling a small, but most importantly flexible team that combined IT, numerical and financial skills. Zeliade worked efficiently with our top Quants and proved very reactive and flexible to our demands. As a result, they were able to deliver a customized library with performances that exceeded other packages”


Hedge Fund

A large Fund manager needed to assess properly its CDOs portfolio in the context of a sale of its assets.  It asked us to develop a customised application and to provide an independent valuation of its portfolio.

The Hedge Fund was facing challenges such as: bespoke portfolios (multizone assets with names not belonging to any index, tranchlets, short maturities)

The first step was to help the Hedge Fund select an appropriate quant model. We presented the Fund with the latest research models available on the market. Taking into account the Fund’s expertise with current models and its views on the market, it was decided to choose the broadly accepted RFL model, to which we added a crash intensity risk factor enabling us to calibrate very closely with the market even in the more senior tranches (fraction of a bp).

As a second step, the Fund wanted to test the model on a historic basis (1.5 years) in order to validate the pricing methodology and its underlying reserve ratios.  This could only be done in a timely fashion thanks to the efficiency of the application used both from an algorithm and an IT point of view: 20 sec computation time per iteration.

As a third step, we carried out the valuation of the portfolios, taking into account market conventions and legal aspects. This led to an accurate valuation of the portfolios and their underlying reserve ratios.

The whole project was successfully completed within a short time frame (3 months) due to the quality of the team, and its know-how in both quantitative analysis and IT.

Client Testimonials :
Manager, Hedge Fund
“Their products are just smart: they provide unmatched calibration and speed, including senior tranches. To me this can only be achieved by a team that excels in both IT and quant”

 

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