As global commerce grows more and more corporations require the ability to manage positions in currencies, interest rates, commodities, equities and options while maintaining compliance with standards such as FAS 133, IAS 39 and AcF-13.
FINCAD Analytics provide a powerful suite of tools to meet the needs of Corporate Treasuries dealing with derivatives. In an easy-to-use format, Treasurers can manage valuations and hedge exposures for a wide variety of assets.
Whether in a spreadsheet format, integrated into existing applications or provided On-Demand, FINCAD Analytics ensure that CFOs, corporate treasurers and controllers have all the required mechanisms to assess their pricing and risk across all asset classes.
FAS 133/IAS 39/ACG-13
The US, International and Canadian Accounting Standards Boards have articulated similar requirements for corporations to measure hedge effectiveness. The Perfect Hedge has implemented features commonly required by all three standards for affected corporations.
The following guideline endorsed Hedge Effectiveness Testing Methods are supported:
- VaR reduction analysis
- regression analysis
- historical scenario dollar offset analysis
The VaR Reduction Analysis method is performed by calculating the VaR of underlying positions and the VaR of the derivative positions used to hedge. If the VaR is reduced sufficiently the hedge can be expected to perform effectively.
The Regression Analysis method is a preferred method for certain types of cashflow hedges. The system calculates correlation results by regressing two sets of variable rate fixings (for example LIBOR versus a non-benchmark rate). This can be done conveniently, because the system stores necessary histories of rate fixings.
The Historical Scenario Dollar Offset Analysis method is a powerful hedge effectiveness testing tool where the system generates a set of scenarios based on historical price and rate changes where such changes are calculated automatically from the market data stored on the system. For each scenario, the dollar offset changes in the underlying trades are compared with the dollar offset changes in the derivatives. Then the system calculates a correlation result from the set of dollar offset changes as a measure of hedge effectiveness.