|By Business Wire||
|August 8, 2013 04:34 PM EDT||
Savvysoft announced today the addition of several new models to its award-winning TOPS Suite of derivatives pricing models which utilize curves based on OIS (Overnight Index Swaps).
OIS discounting is becoming the standard method for pricing derivatives, replacing the LIBOR curve which has been tainted by scandal since the beginning of the financial crisis. OIS curves are based on Fed Funds rates and interest rate swaps where the floating leg is tied to Fed Funds instead of LIBOR. However, the LIBOR curve is still significant since many instruments issued in the past are contractually tied to the LIBOR rate. New pricing models are needed which take both curves into account.
The new routines include a yield curve generator specifically designed for generating OIS curves from any combination of short term Fed Funds rates, Fed Funds futures, and OIS swaps. Another curve generator calculates an adjusted LIBOR curve which takes into account not only short term LIBOR, Eurodollar futures and interest rate swaps, but which also discounts LIBOR-based cash flows at OIS rates. This adjusted LIBOR curve is more accurate than a curve generated using LIBOR rates alone.
TOPS derivatives models utilizing both OIS and LIBOR include the ability to price non-cancellable swaps, swaptions, cancellable swaps, caps and floors. In particular, the new dual curve Swaption model allows users to set a parameter which specifies how the two curves move relative to one another due to volatility. This model is arbitrage-free.
All new models which utilize OIS curves are available immediately.
Savvysoft is a New York City-based provider of award-winning OTC derivatives pricing analytics, and portfolio and risk management systems. Savvysoft’s products handle OTC derivatives in every traded market including: Interest 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.