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A-Team Insight Blogs

CITIC Bank Selects Pricing Partners to Reduce Risks of Structured Products

Hong Kong-based CITIC Bank International has implemented Pricing Partners’ Price-it Excel derivatives pricing library to give its risk management team and derivatives business a clearer understanding of pricing and valuation around foreign exchange structured products.

The bank – a subsidiary of CITIC International Financial Holdings with 31 branches in Hong Kong, four in China and three overseas – selected Pricing Partners’ Price-it Excel solution in a competitive tender and will use it to replace in-house developed pricing software. Essentially, Price-it Excel, based on Microsoft Excel, is an analytic and independent pricing library that uses a generic payoff language description to price most financial derivatives. It also supports value at risk and conditional value at risk.

The deal was signed through Pricing Partners’ regional distributor, Belatos, which was set up in December 2009 to help western software vendors develop business in Asia.

According to Dominic Tsui, head of market risk at CITIC Bank International, “We chose Price-Excel to supplement and enhance support for our derivatives business because of its capability for modelling and pricing FX structured products with ease and flexibility, both for individual transactions and on a portfolio basis.”

Eric Benhamou, CEO of Pricing Partners, adds: “CITIC Bank International was looking for an advanced derivatives pricing library with a wide capacity for pricing. We did a workshop with the bank and proved our solution was best for its purpose. The bank wanted to take a step forward from its existing internal solution and adopt cutting edge tools like those used in investment banks. It wanted to invest in available software to achieve a quick time to market.”

The Pricing Partners software was implemented and went live in late 2011. “Using Price-it Excel, the bank can do its own valuations and pricing. Rather than taking a black box approach to pricing, transparency is important. The bank wants to see the whole computation and pricing process. It also has a clear view of risk as the software shows Greeks, the sensitivity of a product’s price with respect to market changes. This is key in understanding and analysing risk in the derivatives business,” says Benhamou.

For Pricing Partners, the CITIC Bank International deal is pivotal to plans set down in 2010 to develop in Asia. It also hopes the bank may move into other trading areas and use its cross-asset pricing and analytics software for OTC products including equities, commodities, fixed income, interest rates and hybrids.

Meanwhile, the company will continue to work with Belatos to market its products across Asia and, in response to demand for local support, has added a second support person to its local office in Hong Kong.

Named clients already working with Pricing Partners in Asia include: Korea’s Daewoo Securities, which has deployed the complete Price-it library suite, including Price-it Excel, Price-it API and Price-it Source Code, to manage derivatives and structured products; Hana Daetoo Securities, another Korean firm that has implemented Price-it Excel; and Commercial Bank of China (Asia) that is using Price-it Excel on its derivatives desk.

“For us, signing with CITIC Bank International validates our business model in Asia,” says Benhamou. Founded in France in 2005, the privately held company now has over 50 clients in Europe and Asia, 30 employees in Paris, London and Honk Kong and ambitions to move into the North American market.

“Our business is working well in Europe and Asia, so we are confident we can convince clients in North America to work with us,” says Benhamou. Backing up the American dream, he adds that Pricing Partners is working on products for the market.

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