Front-to-Back Straight Through Processing for Credit Derivatives
Credit derivatives have been at the heart of the recent financial crisis. But organisations have learned from the turmoil and are now putting in place more reliable risk management for this activity.
It has become very clear that implementing an STP platform for derivatives is a pre-requisite as it enables them to carry all positions with proper pricing models, have an accurate view of their risk profile across their portfolio and maintain an efficient processing engine.
Key challenges for traders and portfolio managers in the credit derivatives space are to book all types of bonds and credit derivatives contracts, to calibrate default curves and correlation matrices from mark to market data; and to have the capacity to stress test these data or to run default what-if scenarios with the largest flexibility.
Operational risk has also emerged as a key issue in the credit derivatives business especially in the case of a massive default wave. Automated cash flow and a default event process - as well as integration with clearing houses - guarantee to keep smooth processing even in exceptional market conditions.
Our expertise
Sophis provides a proven solution for managing credit derivatives and is used by a broad range of clients. The success of our platform is ensured by a comprehensive range of key functionalities.
- Front-to-back straight through processing capabilities allowing users to seamlessly support the deal lifecycle from pre-trade pricing to settlement
- Real time P&L for listed contracts (CDX, ITRAXX, MBS)
- Theoretically compute P&L and analytics on OTC contracts (CDS, CDO) with marked to market prices or with Sophis proprietary pricing engine
- Consistent exposure report across the whole credit portfolio
- Wide list of analytics computed per position and then consolidated for the whole portfolio: interest rate DV01/DV02, credit DV01/DV02, duration, YTM
- Comprehensive list of risk analysis scenarios: credit DV01 per time bucket, risk matrix to linearly shock the credit curve, stress test to apply user-defined non linear shocks to the credit curve, total loss, auto credit-hedging using CDS
- Parametric credit VaR using credit volatility and correlation between names
- Coupon tickets, expiry tickets and defaults events are automatically processed
- Linked with Markit and CMA, our solutions automatically retrieve the updated credit data and calibrate all default probabilities for each name
- Links with leading market application for affirmation, matching, clearing and reconciliation processes (DTCC/DeriServ, TZero and MarkitWire)
Product coverage
Sophis handles a wide variety of credit derivatives contracts:
- CDS
- CDX, ITRAXX
- Option on CDS, Option on CDX
- Synthetic CDO
- Nth to default
- CDO²
- ABS/MBS
- ABCDS
- Term loans
- Revolving loans
Find out about our solutions and technology
Learn more about our customisation capabilities
Read our quantitative team publications
