Jersey City, New Jersey, 9 April 2003 â Principia Partners, a leading provider of full front-to-back office systems for global markets, today announced it has extended its credit derivatives functionality to support the increasing demands of the structured finance market. The Principia System version 4.0 offers comprehensive instrument coverage and robust structuring capabilities with advanced risk analysis and calibration techniques for pricing credit derivative and credit arbitrage products.
The new release covers both simple vanilla and exotic derivative instruments, including: credit default swaps, credit default options, credit default binary swaps, credit default swaptions, credit-linked notes and basket credit derivatives.
As risk and investment management strategies evolve to produce enhanced returns, credit derivatives have become an increasingly attractive product for entities such as insurance companies, credit arbitrage hedge funds, structured investment vehicles (SIVs), CDOs and other capital market groups. The Principia System enables portfolio managers within these entities to structure complex (liquid and illiquid) instruments and to manage them through a full trade lifecycle. This includes initial pricing and execution, through risk management and reporting, to accounting and operational control. The system is widely used by SIVs and structured finance firms who require this range of processing functionality.
The Principia Systemâs enhanced credit derivative capability addresses one of the most critical industry challenges today: risk measurement of instruments priced from disparate sources of credit market data. In a sector where reliable, standardized market data is not widely available, portfolio managers will benefit greatly from the Principia Systemâs flexible calibration tool, which ensures that prices are derived from actual and consistent market conditions. The system utilizes intensity-based pricing models, which use market-derived default probabilities and recovery rates. Traders and risk managers can define and organize their own credit curves from their specified benchmarks.
Dr. Douglas Long, Principia Partnersâ European Head of Product Management, comments: "The credit derivatives market still lacks both an industry-recognized pricing model and a standard source of market data. In this climate, it is essential for institutions to use robust pricing models capable of calibrating to market credit data while providing a consistent valuation framework. This dramatically reduces exposure to pricing risk, which remains a major problem for credit derivatives in todayâs marketplace."
Clients will benefit from the seamless integration of the new credit derivative functionality within the Principia Partnersâ risk structuring and risk management framework. This allows them to view risk across different horizons and in varying levels of granularity.
"The Principia solution helps resolve a number of scalability, transparency and operational risk issues facing users of credit derivatives today," states Dr. Long. "We have delivered functionality that produces accurate valuation, on a proven framework that provides integrated portfolio and risk management for assets, liabilities and derivatives. "