Numerix enhances CrossAsset to support OIS discounting

First Published 13th March 2012

Numerix CrossAsset, Version 10.0 provides model innovation for Multi-Curve Pricing

Steven R. O’Hanlon, President and COO, Numerix

Steven R. O’Hanlon, President and COO, Numerix

"The demand for OIS discounting has grown significantly since 2007 and I'm proud to say that Numerix has been on the forefront of this shift."

New York - Numerix, the provider of cross-asset analytics for derivatives valuations and risk management, has released in its latest version of Numerix CrossAsset new capabilities intended to help clients manage the pricing, risk and quantitative modeling challenges associated with valuing collateralized derivatives trades using Overnight Index Swaps (OIS) discounting.

The latest version of Numerix CrossAsset reflects the approach taken by Numerix to manage and support pricing derivatives in a post-credit crisis environment where companies found it increasingly difficult to raise funds at what had been the benchmark funding term. As Libor-OIS spreads widened, funders were forced to look to the overnight market leading to a surge in OIS volume and speculative interest due to ongoing market volatility.

"A single yield curve was no longer sufficient to discount cash flows and estimate future rates, each interest rate tenor needed its own projection curve," said Tom Davis, Vice President of the Client Solutions Group at Numerix. "Initially this was due to increased liquidity premiums and credit risk; however the main driver behind this shift was the move to daily margin postings which had to be funded at OIS rates due to newly imposed rules of collateralization for swaps and futures."

In response to the new multi-curve paradigm, Numerix quantitative researchers carefully considered the role each curve played, from model calibration to the ultimate pricing of a derivative instrument. Numerix developed several instruments, pricers and functionalities within its industry leading CrossAsset analytics platform to help clients adjust to the new market reality of modeling in a multi-curve environment. Curve stripping for both projection and discounting, model calibration and pricing are now possible.

"The demand for OIS discounting has grown significantly since 2007 and I'm proud to say that Numerix has been on the forefront of this shift, which has not only created significant challenges in the fundamentals of modeling but also for clients as they review their internal valuation practices systematically from the front through to the back office," said Steve O'Hanlon, President & COO of Numerix. "In an environment where most valuation vendors are offering OIS as the standard discounting basis for collateralized derivative deals, Numerix leads the industry with the most comprehensive models and methods available for multi-curve pricing."

The following modifications and enhancements have been adapted in CrossAsset 10.0 broadening the capabilities of the Numerix CrossAsset library for multi-curve pricing and OIS functionality:

· Multi-curve model calibration to swaptions for HW2F (Two-Factor Hull-White Model), BK (Black-Karasinski Model), SBK (Shifted Black-Karasinski Model), LMM (Libor Market Model)

· Constant Maturity Swap (CMS) Analytics (Swaps, Spread Options and Caps/Floors)

Swaption Volatility Cube (volatility cubes and surfaces with multi-curves)
SABR stochastic volatility surfaces with dual-curve
Forward Rate Agreements (FRA) analytics
Floating Rate Note (FRN) analytics
Projection curve stripping from FRA and FRN instruments

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