Improving Transparency for Structured Products and Hybrids
The structured and hybrid products market recorded an impressive growth phase over the past 10 years. The market has seen a slowdown more recently, but the market will continue to grow as these products are necessary to guarantee returns and hedge risk for a large scope of investors.
The financial crisis showed that many structured products were not valued correctly and risk exposure not well explained and controlled. Because of that some investors made huge losses.
Consequently the key feature that came out strongly and that many investors now look for is transparency. So what do financial institutions need to produce and improve transparency around structured and hybrid products?
- Valuation of products with appropriate models
- Risk exposure calculation with the right risk analytics
- More precise and frequent reporting to regulators but above all to clients and investors to show them true value and exposure
- Limit operational risk by processing these products entirely automatically
Besides the need for transparency, innovation remains key. To be a winner in this market requires the constant release of new products. Time to market is crucial. Indeed, new products such as bonus, outperformance and airbag certificates, reverse convertibles and capital protected notes become standard very quickly. So innovative products with new pay offs need to be released constantly by market practitioners.
Transparency and time to market to release new products imply an absolute necessity to put in a place the appropriate system.
Our expertise
Sophis has been in the business of structured products for 20 years and knows the problems faced by the powerhouses of that industry. We provide a flexible and open front-to-back platform with powerful pricing and risk analytics across asset classes.
Sophis provides a very simple way of managing the whole life cycle of structured product trades while providing an opportunity to precisely value and hedge their position with respect to a great deal of market data (such as volatility and correlation). They can easily identify risks by breaking down their sources and taking appropriate action.
Traders can create and industrialise new structured products in record time thanks to a flexible package structure and modelling features. Thanks to the award winning Structure Builder module, they can define new pay offs manually and book their new products in a matter of hours. If pay off is not linear, the powerful Sophis API can be used to design more exotic products in record time.
The same mechanism used for structured products allows traders to put together asset classes and build hybrid products.
With Sophis, users can generate reports automatically or in line with demand from their investors with precise valuations and risk exposure via custom web interfaces.
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