Fri. Jul 19th, 2024

Tools for derivatives valuation

Derivatives are used by institutions to protect the value of their assets. In order to make sure that they fulfil their role, it is worth using modern tools for their valuation. What possibilities do users of such applications have?

Valuation of derivatives

Nowadays, larger institutions have special tools and supporting applications, thanks to which the valuation of derivatives is much easier. Such programs not only support the valuation process itself, but also allow to verify and test the obtained results. Using this type of software in a company also brings other benefits. The experience gained from the use of such tools includes reduction of the risk of making a mistake and obtaining more precise results, as well as quick valuation of even large portfolios of financial instruments.

Derivatives can be a hedge against market risk, so it is worth taking care of their accurate valuation. A special application used for this purpose will certainly be a great convenience for entrepreneurs. It is worth mentioning that derivatives can also be used for speculation and allow obtaining much higher income than in the case of speculation on basic instruments. On the other hand, this entails greater investment risk. Special tools for valuation of derivatives can reduce this risk.

Tools with many possibilities

Valuation of derivatives is not an easy due to their diverse and often complex mechanics. It requires the establishment of an appropriate valuation model, but also the use of appropriate tools. To carry out the whole process in a correct way, knowledge of stochastic modelling is therefore essential.

A special application – Derivatives Automated Valuation Engine – allows quick and intuitive valuation of such financial instruments as the bonds, futures, currency swaps and options, or interest rate futures. The results obtained may also be analysed in terms of their sensitivity to changes in market factors or changes in the parameters of the instrument itself. A modern application for valuation of derivatives also allows exporting the results for further analysis or reporting purposes, which facilitates cooperation with the auditor. This type of tool, based on models commonly used in market practice, guarantees accurate results while reducing the risk of error. This is helped by a very simple, user-friendly way of functioning of this application.

Why you should use derivatives pricing tools?

Many factors influence derivatives, therefore their valuation may be complicated. That is why many entrepreneurs entrust this task to professionals. Is it beneficial to use special applications for valuation of financial instruments in such a situation? Of course it is. These types of tools not only allow you to do your own pricing, but also allow you to verify calculations provided by external parties. Using them also greatly facilitates cooperation with an auditor.