London, United Kingdom
March 25, 2009

OTC Derivatives and Structured Product Pricing Practices: Trends and Technology Strategies for the Coming Market Reformation

Table of Contents

Return to report Abstract

Introduction 3
Executive Summary 4
Fallout from the Market Crisis 6
  Background 6
  OTC Derivatives, Structured Products, and Securitization Markets 7
How Market Trends and Business Dynamics Are Changing Pricing Practices 14
  Existing Complex Portfolio Valuations Revisited 14
  Independent Valuation and Investor Assurance 15
  Efficacy of Control Functions 16
  Hybrids and Exotics: Addressing Cross-Risk Dynamics 18
  Model Validation and Quality Assurance 19
Pillars for Post-Crisis Reformation: Strategic Business and IT Implications 20
  Improve Pricing Analytics Consistency Front-to-Back Across the Value Chain 21
  Define a Coherent Strategy for a Model Development Infrastructure 24
  Align Front Office, Risk Control, and Support Interactions Based on Product LIfecycle 27
  Establish Pricing Information Transparency Upstream to Inform Control Activities Downstream 30
  Rethink Building Blocks That Play into Pricing/Valuation Architecture 32
Looking Forward / Conclusions 34

 

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