DerivActiv, a provider of independent derivatives valuations, has expanded its services to include non-performance risk adjusted valuations for FAS 157 reporting of derivative products. The vendor explains that it has developed a proprietary procedure to evaluate non-performance risk and adjust mid-market values to comply with the fair value reporting requirements.
According to the vendor, its adjustment methodology has been used in financial reports and its process has been reviewed by national and regional accounting firms. Johan Rosenberg, president of DerivActiv, explains: “With the emphasis on exit price determination, the changing credit characteristics of each counterparty must be taken into account in determining fair value. Changes in the marketplace affect the exit price and require an adjustment to the standard mid-market valuation.”
Under FAS 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This new definition focuses on the exit price of the instrument rather than an entry price.
The vendor says its solution is a response to the growing need for independent valuations and transparency in all derivative transactions. Accordingly, DerivActiv will provide FAS 157 valuations for derivatives including plain vanilla swaps, swaptions, knock-outs, CMS swaps, equity swaps, foreign currency swaps, range accrual swaps and other exotic derivative structures.