technical description

This module of the Pegasus Finance suite allows determination of "Fair Value" for OTC derivatives and bonds structured with implicit derivative components.

The calculation engine is able to distinguish, within the financial instrument, between  components that can be priced through closed formula and components that need to be evaluated according to numerical methods.

financial instruments

The present module allows to analyze the following securities types:

• European Options;

• Cliquet Options;

• Cap & Floor options;

• Interest Rate Swap (fixed to float, Amortizing, Basis swap, Index swap);

• Swaption;

• American Options;

• Asian Options;

• Quanto Options;

• Forwards on currencies;

• Knock In Barrier Options;

• Knock Out Barrier Options;

• Plain Vanilla Options;

• Equity Bonds– Index linked;

• Equity Bonds; Asian Index linked;

• Reverse convertible o;

• Reverse Floater Bonds;

• Callable Bonds;

• Constant maturity swap Bonds;

• Reverse cliquet Bonds;

• Dual Rate Bonds;

• Coupon reset Bonds;

• Corridor Bonds;

• Mirror Bonds;

• Life Style Bonds.

Will be properly valued even those types of structured securities composed by two or more of the above listed elements.

calculation engine

The complex calculation engine that allows pricing of financial instruments is based on the following support functions:

• Function of standardized normal probability;

• Standardized inverse normal distribution;

• Logarithmic yield;

• Historical volatility;

• Correlations;

• Cholesky's factorization;

• Monte Carlo method;

• Implicit volatility;

• Securities basket volatility;

• Forward Rates;

• Binominal method;

• Greeks determination;

• Yield to Maturity;

• Duration;

• Modified Duration;

• Convexity.

Results

The application allows to calculate the following synthetical securities indicators:

• Fair Value of bonds and hedges;

• Greeks evaluation (Delta, Theta, Rho, ecc.) requested on Puma notifications;

• Intrinsic value of hedges

• Net and gross Yeld to Maturity

• Hystorical volatility

• Duration

• Modified Duration

Within the module it's possible the insertion a spread (tipically an indicator of credit) at rating, nation, currency, issuer and security levels.

A differentiation can be indicated, for each spread type, depending on the point curve used.

Calculation can also be performed in retroactive date, allowing a correct ex-post pricing.