The linkage between the equity and credit markets has been historically difficult to quantify. Monisâ Firm Value Model provides that ability, modeling equity, credit and volatility as derivatives of firm value. Users may calibrate firm behavior to both volatility and credit markets, or imply market data based upon their own assumptions of firm behavior.
The Firm Value Model will help traders to translate between credit and equity volatility markets, providing the ability to measure the relative value of credit and volatility and thus determine whether or not arbitrage opportunities exist. It will also provide the ability for firms to estimate the impact of restructurings, takeovers, and other events on its capital structure.
The Firm Value Model is available as an integrated component of Monis, which provides analytics, pricing and risk management for convertible and capital structure arbitrage. The new version of Monis 8.0 includes several key enhancements, including expanded asset class coverage to support credit trading, additional models for hedging, full Excel-based integration with the Monis Time Series Database, and enhanced modeling and pricing features.
Asset coverage has been expanded to include CDOs and Nth-to-Default baskets. These new instruments complement the existing single name credit default swaps supported by Monis to provide more complete coverage to credit trading desks.
Monisâ new issue pricer for convertible bonds has been enhanced to help users find and price instruments for a given issuer with ease. For example, it calculates fair values, implied volatilities and deltas automatically, across a matrix of yield and premium combinations, to help users measure relative rich/cheapness more quickly during the price talk.
In addition to these new pricing features and instruments, models for volatility, variance, equity and dividend swaps have been added to Monisâ existing hedging functionality. This helps users to manage their convertible arbitrage or capital structure arbitrage books with all of the hedges in a single environment. Monisâ Time Series Database has been integrated with the solution via an Excel interface so that users can directly access time series data on a given bond through the spreadsheet, viewing both prices and calculated outputs, providing the ability to analyze bonds from a historical perspective with just a single click.
Emanuel Mond, president of SunGardâs FRONT ARENA business unit, said, "We continually work to enhance Monis to maintain its position as a leading solution for convertible arbitrage and capital structure arbitrage. The launch of our Firm Value Model demonstrates that we are at the forefront of newer trading strategies like capital structure arbitrage."