The white paper expands on the âRates, Curves and Surfaces â Golden Copy Management of Complex Datasetsâ white paper Xenomorph published recently and describes how, despite the increasing importance of instrument valuation to investment, trading and risk management decisions, valuation management is not yet formally and fully addressed within data management strategies and remains a big concern for financial institutions.
Too often, says Xenomorph, valuations (and the analytics used to process input and calculate output data) fall between traditional data management providers and pricing model vendors. This leads to the overâuse of tactical desktop spreadsheets where data âescapesâ the control of the data management system, leading to an increased operational risk.
Whilst instrument valuation is certainly not the primary cause of the recent financial crisis, the lack of high quality, transparent valuations of many complex securities resulted in market uncertainty and in the failure of many risk models fed by untrustworthy valuations.
âA deeper understanding of financial products reduces operational risk and promotes quality, consistency and auditability, ensuring regulatory complianceâ, says Brian Sentance, CEO Xenomorph. âClientsâ requirements have evolved and portfolio managers, traders and risk managers recognize that it is no longer sufficient to treat valuation as an external, black-box process offered by pricing service providersâ, he adds.
Nowadays, regulators, auditors, clients and investors demand even more drill-down to the underlying details of an instrumentâs valuation. It is therefore important to implement an integrated, consistent analytics and data management strategy which cuts across different departments and glues together reference and market data, pricing and analytics models, for transparent, high quality, independent valuation management.
âOur TimeScape solution provides a valuation environment which offers rapid and timely support for even the most complex instruments, allowing our clients to check easily the external valuation numbers, based on their choice of model and data providersâ, says Sentance. âOtherwise, what is the point of good data management if the valuations and the analytics used are not based on the same data management infrastructure principles?â