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OTC Val Expands to FAS 157 Non-performance Risk for Valuations

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OTC Valuations has expanded its valuation service to include non-performance risk under FAS 157, which refers to the risk that the obligation will not be fulfilled. Bob Sangha, managing director of OTC Val, explains that the expansion of its valuations service is in reaction to client requests and requirements.

Sangha comments: “Expanding our services once again is a reflection of our commitment to evolving our services and working with our clients to address their non-performance risk requirements.”

OTC Val employs multiple valuation techniques to address the Level 1, 2, and 3 input requirements of FAS 157, says Sangha. The fair value accounting principles under FAS 157 require the fair value of the liability to include an adjustment for the non-performance risk related to the liability. Therefore in order to comply with FAS 157 and prior to adjusting a liability’s fair value by the non-performance risk, an institution must determine how a liability’s value is derived. This is especially the case for hard to value derivatives with level 2 or 3 inputs, which require models to derive their values. Accordingly, OTC Val has implemented a procedure to account for non-performance risk in its valuation process.

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