Pricing and managing derivatives often involves very challenging issues. Models could have complementary advantages, whereas, models suitable for vanilla derivatives cannot always fit complex instruments, and this is particularly true for the underlying interest rates. Nevertheless, changing market trends urge Pricing Partners to provide ever more precise valuations from vanilla instruments to complex ones. Pricing Partners was inspired by the Hagan Adjuster methodology, which combines merits of different models so as to retain the excellent performance of one while improving the capacity of others. And thus, Pricing Partners has gone one step further by making the Hagan Adjuster available to virtually any interest rates payoff thanks to the formalism of the Price-it® language.

Dr. Hagan’s adjusters are automatic control variate tools that aim at reducing the error of dynamic models on simple derivatives by associating a static model. Thus, both simple and complex derivatives can be accurately priced. When the method was initially published, Dr. Hagan entitled his articles “turning good prices into great prices”. Leveraging on the original work of Dr. Hagan, Pricing Partners has extended this method to virtually any interest rates payoff. Resulting Pricing are more accurate and offer a systematic way to price interest rates payoff.

Pierre Gauthier, financial engineer at Pricing Partners comments, “Static and dynamic models have complementary advantages. While the former possess virtually a full knowledge of the current interest rates market, the latter propose approximated dynamics for the yield term structure. By correcting dynamic models on complex underlying factors, Hagan Adjuster provides a simple framework for getting improved prices. Yet, it is important to bear in mind that calibration remains a crucial step in fixed income derivatives pricing, eased in Price-it through the calibration portfolio description”.

Eric Benhamou, CEO at Pricing Partners, declares, “The market is evolving towards more vanilla products and in return is asking for greater accuracy for prices and Greeks. Pricing Partners has a strong tradition to be at the forefront of the research and to offer its clients the most accurate valuations. The Hagan adjuster model turns effectively good prices into great prices. In addition, we innovate in creating a very generic Hagan adjuster methodology that goes even beyond the original and smart idea of Pat Hagan, that was developed and spread in leading investment banks like BNP Paribas, Goldman, and many more. With this new methodology, we are getting even closer to similar models as the leading investment banks”.

About Pricing Partners

Set up by former professionals of the trading industry, Pricing Partners offers accurate solutions for derivatives products valuation, pricing tools and risk analytics. Thanks to Price-it online, a SaaS platform, Pricing Partners provides independent valuation from the vanilla to the most exotic financial products on most assets (Interest Rates, Fixed Income, Equity, Inflation, Credit, Foreign Exchange, Commodities, Life Insurance and Hybrid products). Pricing Partners develops and commercializes Price-it Excel, an analytic and independent pricing library using a generic payoff language description which allows the pricing of virtually any financial derivatives. Price-it also supports VaR, CVaR and the most common risk management tools. Pricing Partners is the only company completely mastering the chain of valuation, developing both its own pricing library and a valuation platform, which give its clients very accurate and reliable valuation as a result of its intrinsic knowledge of the pricing tools. Pricing Partners solutions can be used by investment banks, buy side firms, hedge funds, financial departments, trading rooms and audit firms.

Pricing Partners has also signed numerous partnerships to distribute its technology with leading institutions like NYSE Euronext (for its independent valuation service via Prime Source), Misys (for its pricing library integrated into Summit), CMA or Lexifi. It is a Microsoft IDEES partner, an IBM, Sun, Datasynapse and ActiveEon partner. Furthermore, it is a member of the grid research consortium GCPMF uniting BNP Paribas, Calyon, Ecole Centrale, EDF, ENPC, INRIA, Natixis, Misys, Pars VI University and Supelec and a global coordinator of the Credinext consortium, in collaboration with Prime Source, Lunalogic, Ecole Polytechnique, ENPC, University of Marne La Vallée and INRIA.

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