SuperDerivatives, a derivatives pricing and trading technology firm, is to provide the liquidation price (or ’exit price’) of all derivatives held within clients’ portfolios. Liquidation prices for the time of calculation or for any retroactive dates will be supplied as part of SuperDerivatives’ independent portfolio revaluation service.
The company says the offering addresses the need for
valuations of portfolios that might be liquidated and aims to provide a fair value disclosure for investors that foresee a liquidation event. The company believes
demand for liquidation price-based valuations has increased during the recent financial crisis, as well as by specific regulatory requirements such as FAS 157.
SuperDerivatives says it will use its benchmark model for bid and ask prices to calculate the liquidation price for all types of financial portfolios, including those that contain illiquid OTC derivatives. It believes this will address challenges facing the industry today by accurately calculating the bid-offer spread for each
specific structure, replicating market entry and exit (liquidation) prices, adapting spread levels to changing market conditions based on inter-product correlations and assessing a total portfolio’s collective impact on liquidation price.
Under the terms of FAS 157, firms are required to define the exit price of all instruments to calculate fair market value or “…the price that would be received to sell an asset or paid to transfer a liability.” Additionally, during times of distressed market conditions, SuperDerivatives contends the exit price is the only price that matters to the portfolio manager looking to redistribute risk exposures.
“Today’s financial crisis has proven that none of the available models, or standard analytics, can be used for universally calculating the fair value of options – and there is no off the shelf model for determining bid-ask spread,” said Dani Weigert, head of revaluation services at SuperDerivatives, in a statement. “SuperDerivatives’ liquidation price-based valuation cannot be generated by other revaluation providers.”