We prefer clean, elegant models that can be (relatively) easily communicated to non-mathematicians and have well-known and easily-understood shortcomings rather than overly-detailed, Rube Goldbergian contraptions that suffer from the same—but better camouflaged—shortcomings. 

Services for Industrial Firms:

• Commodity Price & Derivative Risk Analysis – We can analyze risks and recommend hedging strategies and tactics for commodity producers and users.
• Integrated Hedging Strategy Design & Advice – Many commodity users have relegated hedging activities to their purchasing departments in the attempt to minimize costs or input price risk. We recommend a more integrated approach that considers customer preferences and estimates of their risk premia—in terms of higher prices—for longer-term price certainty. Such an approach will generally requires training, too, but substantial opportunities to create value exist for forward-looking organizations.
• Interest Rate & Foreign Exchange Hedging Analysis & Advice - Mid-sized industrial firms tend to be at a disadvantage when negotiating with financial firms, who specializing in selling such contracts. Most could substantially benefit from outside expertise when hedging rate and foreign exchange exposure.
• Counter-party Credit Reserve Modeling – Given current market volatilities and the degradation in credit quality of many traditional counter-parties, estimation of counter-party credit risk and reserves is becoming crucial.We’ve developed counter-party credit reserves models—using risk neutral valuation—for fixed-income derivatives, including interest rate swaps & swaptions; FX (foreign exchange) futures and options; and equity options.

Services for Any Organization:

Market Risk Measurement

Identification, assessment, measurement, and consolidation of market risks & uncertainties using your choice of methodologies: value at risk (VaR), earnings at risk (E@R), economic capital (EC), potential future exposure (PFE), etc.

Scenario Development and Stress Testing

Development of routine and ad hoc scenarios, including enterprise-wide, integrated hypothetical scenarios: in both single- and multi-period scenarios. We combine substantial experience developing multi-period scenarios with extensive experience analyzing and projecting multi-year financial statements and cash flows.

Model Development and Validation

We’re capable of analyzing any number of complex and unusual transactions and have developed many standard models for use by others. These models tend to use risk-neutral pricing, option price theory, and Monte Carlo simulations. Here are examples of projects we’ve performed:

• Simulation of quarterly correlated earnings @ market risk across business lines (on EPS basis).
• Simulation of potential loss from contractual guarantees.
• Counter-party credit reserves for fixed-income, FX, and equity products.
• Fin46 majority residual claimant calculations.
• Employee stock option value calculations and model validation.
• Validation of credit hedging models, historical VaR models, and credit reserve models.

What We Don’t Do

We don’t write code in any version of C or JAVA or VBA; however, we have affiliates that do. We avoid code by using the vector, “vectorize,” and matrix commands in Mathcad. Using that program and those functions allow us to efficiently create large simulations without programming. Please note that we do and will work well with your programmers and coders to develop robust programs and interfaces. Also, we offer training to programmers and database administrators to provide an understanding of the environment that they serve.

Broad-based Experience

We’ve analyzed most types of financial assets and derivatives: commodity futures, forwards, and swaps; fixed income products, including interest rate swaps and swaptions; FX futures and options; equities; equity options & futures; credit products, including credit default swaps (CDS); private equity; and various hedge funds.

We have no particular fascination with markets or trading activities and believe that there are no magical black boxes or risk-free, profit-making strategies. Moreover, we recall our priest’s frequent instructions “to be in the world, but not of the world.” We’ve specialized this a bit: “be in the market, but not of the market.” We believe that this perspective permits the requisite levels of objectivity and skepticism for us to be a valuable partner with your firm or organization.