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Algorithmics Launches New Credit Valuation Adjustment Module

Algorithmics has released a new Credit Valuation Adjustment module aimed at helping banks to use their capital more efficiently through more accurate pricing and hedging of counterparty exposures. The module is an extension to Algorithmics’ Algo Counterparty Credit Risk solution.

Ben De Prisco, senior vice president of research and financial engineering at Algorithmics, says: “Conditions in financial markets today, make it more important than ever to take into account the creditworthiness of your trading counterparties. The consistent and systematic application of Algorithmics’ Credit Valuation Adjustment module will allow financial institutions to incorporate the pricing of credit risk into their derivative transactions, leading to a more comprehensive pricing and capital management approach.”

Algorithmics’ Algo Counterparty Credit Risk solution enables financial institutions to measure unilateral and bilateral credit valuation adjustment (CVA) for complex multi-asset portfolios, to calculate the incremental impact of new trades on counterparty CVA in near real-time, and to hedge the market risk and counterparty credit risk of CVA to reduce overall profit and loss volatility.

Benefits of the module include: more accurate mark to market reporting; management of market and credit risk of CVA; improved pricing, hedging and transfer pricing of counterparty credit risk; and creation of more credit capacity and reduced capital consumption.

Mark Engel, managing director of Scotia Capital, says: “In this market, knowing our CVA at deal time is necessary for us to competitively price our trades. Also, having a detailed CVA risk profile is essential to manage our counterparty risk exposures.”

Bob Boettcher, senior director of product strategy for Algorithmics, adds: “The ability to measure and manage credit risk has never been more important. As CVA is the market price of counterparty credit risk, it is a great illustration of the importance of an integrated, forward looking framework for market and counterparty credit risk.“

The Algorithmics Counterparty Credit Risk solution was recently benchmarked as being able to process one million trades on a $10,000 server across 5,000 scenarios and 125 time steps in less than two hours for a realistic Tier 1 bank trading portfolio.

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