Pricing Partners to create a new calibration instrument to fit efficiently mean reversion

Hong Kong, Paris and London - 20 December 2012

Pricing Partners, the world leader in OTC derivatives pricing analytics, mathematical models and independent valuations, announced today that it has created a new instrument to calibrate efficiently mean reversion parameter for interest rate models.

A new method of calibration dedicated to capture mean reversion is now available in Price-it® Library. It enables users to calibrate on a portfolio using the ratio of different swaption volatilities. When users calibrate on instruments like swaptions or caps, there is collinearity between the volatility and the mean reversion. These calibration methods cannot split the impact between volatility and mean reversion level. However, the ratio of swaption implied volatilities depends strongly on mean reversion. Hence, the new method of calibration provides an efficient and stable way to estimate mean reversion parameter.

Eric Benhamou, CEO of Pricing Partners comments: “We are constantly upgrading our solution to provide cutting edge tool to calibrate and price accurately. This new development should continue putting Pricing Partners at the forefront of the financial techniques.”

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