- Price Challenges: During the pricing process, especially at month-end, a typical fund will challenge between 10% and 30% of quotes for their structured book. The overall process, starting with the initiation of challenges and subsequently tracking and updating prices with revised quotes, adds up to be a significant burden on the pricing team, making it difficult to keep up with revisions. This becomes extremely difficult in cases where the challenge request and response needs to be communicated in a defined way, requiring manual submissions and their tracking. With that being said, an efficient way to streamline the entire challenge process is to set up an automated challenge mechanism to initiate, send, track and consume the challenge response all within one system that also provides users with a sound notification/alert feature and complete audit.
- Recording Input Variables & Performing Sensitivity Analysis: Pricing structured instruments involves a strong validation process through internal models and data points, requiring additional inputs of data that range from volatility curves, forward prices, interest rate curves and much more. These data points help the team to perform scenario analysis and discover the right price using an appropriate model to provide validation against other available quotes. Managing these underlying curves and maintaining their data points overtime becomes quite the overhead for the pricing team. In order to significantly simplify this task, an automated tool can be implemented to help with consumption, storage and visualization while leveraging the capability to post these points to various internal and external models. Overall, this can help the pricing team regress various inputs and understand their impact on the prices of structured instruments.
- Cross-Platform Integration: Oftentimes, the output from the pricing process must be shared with other systems to generate insights and useful information like risk metrics, NAV, sensitivity analysis, etc., making it vital to establish seamless, real-time connectivity with both the upstream and downstream pricing system. This can be achieved through an automated pricing application that can connect with other in-house or vendor systems via multiple modalities like email, FTP, API, etc.
Due to all of these factors, an increasing number of funds are looking for ways to streamline the pricing of structured instruments through the use of better data and more efficient tools.
Discover how Price Master, IVP’s industry-leading pricing and valuation solution, can remove complexity and automate the pricing and valuation process by visiting IVP Pricing and Valuation Automation Solution or contacting sales@ivp.in.
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