About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Consistency in Valuations is Vital for Dealing with Derivatives, Says Lepus and Asset Control

Subscribe to our newsletter

Accurate documentation surrounding valuations is growing in importance in the area of complex derivatives, according to a recent panel discussion held by Lepus Consulting and sponsored by Asset Control. The panel, which included representatives from a number of Wall Street banks and US mutual funds such as TIAA-CREF, agreed that knowing the ultimate parent for derivatives is key to correct valuation. It is as important as understanding the difference between the obligor and the third party for compliance purposes, one panellist explained.

Understanding counterparty exposure is complicated for credit derivatives in particular because tranches are tied to indices and therefore there is a different volatility for the investment and the index. The focus on ‘time to market’ for these products also complicates matters as the use of Excel is encouraged because of this requirement for speedy delivery. This needs to be more adequately balanced with controls surrounding pricing and valuations in order to achieve a consistent methodology, the panel agreed.

Governance in the decision making process is critical as these instruments multiply in number and a firm must be able to juggle demands, manage expectations and trade in a way to manage risk-return tradeoffs.

One panellist talked about valuation and the role of “fair valuation committees” with cross functional representatives to determine the “best value” across the host of structured products. The quant and the accountant must both challenge assumptions in order to achieve better valuations. The firm should also document a policy and process for this, as well as determining a pricing hierarchy for vendor pricing decisions, as they may have different price options from the front office, vendors, counterparties or from other internal sources. “It’s important to have multiple sources and the middle office has a major role in setting hierarchy rules,” one panellist contended.

The panel debated the downside risk of valuations and the impact of these on order books and records. It was agreed that for transparency, there is a need to understand the risk, data issues and exceptions surrounding complex asset valuations, as well as taking responsibility for these within the firm.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Strategies and solutions for unlocking value from unstructured data

Unstructured data accounts for a growing proportion of the information that capital markets participants are using in their day-to-day operations. Technology – especially generative artificial intelligence (GenAI) – is enabling organisations to prise crucial insights from sources – such as social media posts, news articles and sustainability and company reports – that were all but...

BLOG

Data Hurdles, Expertise Loss Hampering BCBS 239 Compliance

A combination of data management hurdles, talent shortages and poor succession planning are bedevilling banks as they struggle to respond to a long-standing risk data aggregation directive – even after repeated European Central Bank (ECB) criticism of their compliance shortfalls. The Basel Committee on Banking Supervision’s Principles for effective risk data aggregation and risk reporting...

EVENT

ESG Data & Tech Briefing London

The ESG Data & Tech Briefing will explore challenges around assembling and evaluating ESG data for reporting and the impact of regulatory measures and industry collaboration on transparency and standardisation efforts. Expert speakers will address how the evolving market infrastructure is developing and the role of new technologies and alternative data in improving insight and filling data gaps.

GUIDE

AI in Capital Markets: Practical Insight for a Transforming Industry – Free Handbook

AI is no longer on the horizon – it’s embedded in the infrastructure of modern capital markets. But separating real impact from inflated promises requires a grounded, practical understanding. The AI in Capital Markets Handbook 2025 provides exactly that. Designed for data-driven professionals across the trade life-cycle, compliance, infrastructure, and strategy, this handbook goes beyond...