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Ubitrade, a leading supplier of advanced systems solutions for trading, risk management and back office on capital markets today announces enhancements to its Ubitrade Capital Markets front-office package to support structured products and exotic derivatives. Enhancements include a new pricing model, structured products coverage and the creation of an open structure for custom exotics instruments.

Ubitrade Capital Markets provides a range of trading-orientated pricing, position keeping, limit checking, sensitivity tools for cash products, derivatives and exotics and offers middle office operators an ideal set of market, liquidity and credit risk management tools. It covers a full range of standard interest rate exotics such as bermuda swaptions, multi-callable bonds, barrier caps, revolver caps, corridor swaps, etc. using a battery of pricing models such as convexity-adjusted forward rate estimation and Black Derman Toy.

In response to growing demand from market makers, Ubitrade has recently added Brace Gatarek Musiala (BGM) to its library of pricing models. BGM is becoming a very popular model amongst traders as it provides users with a LIBOR market model working directly on forward or swap rates, in opposition to models such as Black Derman Toy or Hull & White which work on short term rates. The intuitive character of the model and the calibration process which involves forward or swap rates volatilities and correlations have undoubtedly contributed to the success and popularity of this model. In fact the BGM model is perfectly designed for path dependant products such as revolver cap, ratchet cap (or swap), cumulative cap, bermuda swaptions, etc.

Ubitrade have also added structured products, which consist of hybrid products with both interest rate and equity features, to the list of instruments covered by its Ubitrade Capital Markets solution. Such structured products include equity-linked bonds where the pay-off (coupon) may be defined as a user-function of several variables such as floating rate, equity price, index. They also include convertible and reverse convertible bonds.

Although Ubitrade Capital Markets already covers standard exotics instruments, it has been enhanced to allow users to customise their own exotic instruments. Ubitrade have created an open structure environment which allows banks to design new exotic instruments with custom pay-offs and pricing models. This new structure allows users to incorporate their own pricing and pay-off models to the system, while still ensuring that these proprietary developments remains fully compliant to future releases of the software package. A custom exotic may be defined freely as a set of several parameters or as the composition of several standard instruments, such as the composition of a vanilla swap, a digital cap and a bermuda swaption. This new module is currently being marketed to trading rooms in Europe where there is a great interest for structured products which equity-linked structures can often provide investors with greater returns than plain vanilla bonds.

Jacques SAULIERE, Head of Marketing at Ubitrade, commented: "We expect these enhancements to attract special interest from German players as German bond issuances often include structured features and are hedged with exotic derivatives. For example, the most classic issuances such as the Pfanbrief include multi-callable features and are hedged with bermuda swaptions. As a software vendor, it is our role to meet our clients’ needs and to adapt our solutions to markets’ evolutions. We are confident that these new enhancements will help us secure several deals in Europe and are hopeful that they will incentivise banks to review their current arrangements and demand a product that fully meets their needs and can support their requirements in terms of exotic or structured instruments which tend to generate high margins returns."