November 13, 2012 – New York, NY, USA -- Savvysoft announced today its newest offering, OTC Backtesting&Risk. The product allows OTC derivatives users to instantly view the historical performance of a wide variety of plain vanilla and complex, illiquid derivatives in the Equity, Interest Rate, FX and Commodity markets, including Historical VaR and CVA. Because one of the product’s core features is specifically designed to generate historical time series of OTC derivatives prices, users are able to save hours of time setting up their analysis, performing the task in seconds, not hours. The product is part of the first set of apps available on Bloomberg’s new Bloomberg App Portal, which was just announced today, and is available for $499/month as part of the Bloomberg Professional service.
OTC Backtesting&Risk automatically taps into Bloomberg’s vast database of price, yield, and volatility data, enabling users to call into Savvysoft’s award-winning TOPS pricing models by simply specifying a ticker for price and volatility or a currency code for rates and rate volatilities, making it faster than ever for market participants to quickly generate prices and sensitivities/Greeks for all types of derivatives. Users can even discount bond cashflows with credit curves such as US AA Bank with the appropriate code, providing an extension to Bloomberg’s existing set of discount curves.
OTC Backtesting&Risk calls into Savvysoft’s award-winning TOPS derivatives pricing models with Bloomberg’s vast database of stock, commodity and FX prices, interest rates and volatilities to generate a time series of mark-to-model prices for a wide array of illiquid OTC derivatives structures. Because the mark-to-model prices are generated at runtime, instead of being limited to exchange-traded closing prices, any instrument can be valued. OTC Backtesting&Risk can even derive a price history for a new issue which didn’t actually exist in the past. This time series of mark-to-model prices can then be analyzed, with detailed risk and return statistics automatically and expeditiously calculated, along with VaR and CVA.
The models inside OTC Backtesting&Risk are the same award winning TOPS models which have been used by major market participants to price their books for nearly twenty years, so the price histories generated by the app are equivalent to where the instrument would have actually closed each day.
Risk measurement of options and derivatives is complicated by the fact that these instruments have a clearly defined lifespan. Sometimes users want to look at how the instrument will perform given that its expiration is going to be getting shorter and shorter in the future, and sometimes they want to look at a time series as if the expiration is held constant over time. Risk measurement of options and derivatives is complicated by the fact that these instruments have a clearly defined lifespan. Sometimes users want to look at how the instrument will perform given that its expiration is going to be getting shorter and shorter in the future, and sometimes they want to look at a time series as if the expiration is held constant over time.
Similarly, as the underlying price moves, the moneyness of the option changes (what is now in the money becomes out of the money as the underlying moves against the option holder).
OTC Backtesting&Risk offers users several choices for how to adjust expiration, maturity and strike over the historical backtesting period, allowing them full flexibility in defining the type of VaR they want to calculate.
The generation of historical performance allows users to calculate several statistics based on the results, including the mean return, the standard deviation of returns, and the percentiles of the frequency distribution of returns. The 5th-percentile worst case loss is the Value at Risk, or VaR, and this important risk measure is automatically calculated by the app.
The VaR that is calculated is the Historical VaR, which has several advantages over the other two major types, Parametric VaR and Monte Carlo VaR, most importantly no assumptions are made regarding the correlation of each asset with all the other assets.
The app can calculate VaR for a single instrument, as well as for a portfolio of instruments. Multiple portfolios can be stored, allowing VaR be measured on (1) all the trades that have occurred, (2) a particular subset of trades that make up a strategy, such as a swap and a cap to hedge it, and (3) the components of a structured note, such as a zero coupon bond, plus an S&P call option that expires at the bond’s maturity, to replicate a note that pays no coupon but has a final principal payment tied to the S&P performance with a floor of 100.
OTC Backtesting&Risk employs a multi-period Monte Carlo simulation to generate future scenarios of instrument values over many time periods into the future. For example, a swap can be priced every quarter for the next 20 years, using one path of randomly generated interest rates. This can be repeated for many paths of quarterly swap values, which are then used to calculate CVA. The data driving the simulation is historical data, and all the advantages of Historical VaR over Monte Carlo, including not being required to estimate correlations, applies to OTC Backtesting&Risk’s CVA calculation.
The app also includes a calculator and both a 2-D graph and a 3-D interactive heat map.
Bloomberg Professional service subscribers globally can instantly access the new Savvysoft app at {APPS SAVVY<GO>} The app can be licensed and operated from within the Bloomberg Professional service environment - without disrupting or interrupting workflow.
Rich Tanenbaum, Savvysoft President, commented "We are honored to be among the first group of companies selected by Bloomberg for their App Portal, and we’re also very excited about this new venture. Our models have been available in spreadsheets for almost twenty years, and while Excel offers great flexibility for users who are inclined to build their own spreadsheets, OTC Backtesting&Risk is great at what it specializes in: high-speed backtesting and risk."
A free trial of the app is available on Bloomberg {APPS SAVVY<GO>}
For more information about the Bloomberg App Portal please contact Claudio Storelli at cstorelli@bloomberg.net or visit {APPS<GO>} on the Bloomberg Professional service.
OTC Backtesting&Risk is available immediately. For more information please visit savvysoft.com, or contact Savvysoft at info@savvysoft.com.
Savvysoft is a New York City-based provider of award winning OTC derivatives analytics, and portfolio and risk management systems. Savvysoft’s products handle OTC derivatives in every traded market including: Rates, Inflation, Credit, Equities, FX, Commodities, Convertibles, Energy & Electricity. Our products are used by thousands of users from a broad range of financial institutions worldwide. These institutions include top-tier banks, dealers, brokers, money managers, energy suppliers, corporate treasurers, auditors and consultants. Savvysoft was founded by Rich Tanenbaum, the former head of Derivatives Research at Bankers Trust (now Deutsche Bank). Rich was a founding member of the first OTC derivatives desk on Wall Street at Bankers Trust.
All product names referenced herein are trademarks of their respective companies.
Contact: LeeAnn Chen (212) 742-8677 leeann@savvysoft.com
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