Municipal Bonds pose a permanent challenge to Quants with their yields mixing Credit,
liquidity and on major markets tax components. The Credit risk of municipalities is especially difficult to assess due to both the absence of CDS vehicles and related equities.  The up-to-date approach to deal with this issue is to mix a hierarchical ranking for Credit Spreads within a structural or default intensity framework with a statistical handling of the liquidity component.

Zeliade has a unique know-how on these types of models and can implement adequate variants of this approach to calibrate the Credit and liquidity components of a municipal issue and price the various types of Municipal bonds available on the market.

Moreover in connection to its expertise on the corporate multiname world, Zeliade elaborates
Municipal multiname models to deal with emerging CDOs of municipalities and other kind of Municipal derivatives.


Zeliade Systems and Dexia, the world leader in public finance and in financial services to local public authorities, have had an ongoing relationship for several years now.

Zeliade Systems was originally chosen by Dexia to help them devise, in close relationship with the bank Quant and IT teams, a new way of handling the Credit risk of municipal bonds.

The issue is to model a municipal bond yield in terms of Credit risk, taxes, liquidity and funding. The project consisted in helping Dexia select, an appropriate pricing model and subsequently develop the related pricing application.

In the first step of the project, Zeliade Systems researched and presented the relevant models published in the field, selecting the most appropriate model both from an academic and market perspective. The approved model was then significantly improved with our mutual know-how.

In the second step, a mock-up application was quickly developed and eventually became an industrial-strength software. This was achieved in record time due to the quality of Zeliade team in the fields of software integration, connection with market data feed and proprietary deals databases. The nimbleness of Zeliade and its ability to produce due tests and reports at the various validating stages was also instrumental.

The project proved to be a great success, leading to an ongoing relationship for years.

Client Testimonials :
Jerome Guillemot, Senior Project Manager, Fixed Income department, Dexia
“During the conception and implementation of a strategic project related to credit modelling, I have been very impressed by the quality of the people working with us as well as their responsiveness and availability. The product delivered is in some aspects beyond expectations and knowledge transfer on IT developments has been very satisfactory.”


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