Present in two panels of the "Risk and Valuation" forum, organized by Ian Blance, one on valuation models and the other one on independent valuation, Pricing Partners highlighted the importance of greater transparency on financial structured and otc products. These illiquid products do not have listed prices on exchanges. Consequently, they have to be valued with mathematical models that estimate the cost of the hedging portfolio. Even if all these mathematical models are relying on the same methodology of estimating the average value of future financial cash-flows (using a risk-neutral model, with no arbitrage and consistent with market prices of the hedging instruments), major differences between models used by banks and more broadly the financial community do exist. Even worse, on a given mathematical model, subject yet of scientific publication, two banks may have different valuations because of different implementation details. By offering transparency on its valuation models via a commercial source code solution, Pricing Partners makes a huge step towards greater transparency.
In his speech at the panel sessions on independent valuation, gathering Markit, Sungard Reech, Prism Valuation, Julius Finance, and Pricing Partners, Eric Benhamou, CEO of Pricing Partners and a former Goldman Sachs employee said: "Transparency is a key. At Pricing Partners, we are targeting total transparency in our valuations models, assumptions and methodology. In the case of a pricing challenge, we give our clients access to all the elements used in the pricing, namely market data inputs, modeling assumptions and models used, calibration results and the description of the financial product in our flagship Price-itÂ® language. This is already good and goes beyond most of our competitors. But since the beginning of the year, we go even further and are now offering the ultimate transparency with the access to the source code of our cutting edge valuation models in the Price-it Â® Source Code solution."
Indeed, the source code is the ultimate step towards transparency. It gives access to all the implementation details, whether they are tips and insights for greater robustness and stability of pricing models, or the involved and intricate knowledge for computation acceleration. For modeling teams of investment banks struggling to get their models and analytical working accurately in all cases, for risk controls groups concerned about the obscure murky details of the real implementation of pricing models, for asset management companies in search for completely transparent solution, for hedge funds looking for in-depth understanding and knowledge of valuation models and the possibility of arbitrage, or for auditors responsible for validating and controlling clients models, Price-it Â® Source Code provides a practical and very effective solution. Price-itÂ® Source Code contains a very large part of the Pricing Partners solution source code with approximately ninety percent of the total code. It is a C++ library with approximately 1200 classes and 600 000 lines of code, with API interfaces for standard Dll, Excel Xll, Com Dlls, Java JNI, XML, Misys Summit and Lexifi softwares. It comes with a suite of testing environment and an auto-generation tool to rapidly export functions. Price-itÂ® Source Code has a large coverage in terms of financial derivatives as it covers credit, commodity, equity, foreign exchange (FX), inflation, life insurance, fixed income, interest rates and hybrids. It concentrates experience and knowledge of experts from the quantitative world, who were previously working in top investment banks like Goldman Sachs, Societe Generale or Natixis. Price-it Â® Source code is the only solution on the market providing full transparency on the scientific methods and models used.