ServicesValuations, Validations & Advisory
Valuation services are regularly required when a financial instrument is either not listed or considered not to be traded (actively) on any exchange. A valuation based on inactive market prices, liquidation or distress sale levels is not sufficient to meet the requirements of proper accounting. Consequently, in the event that a market price is not easily available, valuation methods must be used for the valuation of the particular instrument. In this case it is recommended that valuation models are used, for example, discounting expected future cash flows, option pricing models or other valuation models usually used by market participants for evaluating the relevant financial instrument.
For the validation of liquid instruments we rely on our Group data, algorithms and tools. We have developed a “three-phase model”. Depending on our customers’ requirements, we can embellish these stages differently and tailor made.
Price delivery through our automated approach; usually we achieve a very high coverage here. The basis for this is our group internal database.
A validation of the determined quotes; the quality is checked internally again and made accessible to our customers.
If no useful result can be achieved, the automated valuation of the respective instrument is carried out. This applies to 5% to 10% of the instruments.
- Equities, Funds, ETF, Money Market Instrumente
- Bonds, Promissory notes, Loans, etc…
- All instruments related to credit risks (securitized and uncertificated)
- Structured Credit Products & securitization instruments (structured credit assets) as ABS, RMBS, CMBS, CDO, CLO, etc …
- Exchange Traded Derivate
- OTC Derivatives with respect to interest rates, inflation, equities, currencies and credits
- customized financial instruments and project business (e.g. Covered Bonds, Taylormade Bonds, Spezial funds)
- Valuation of financial instruments with respect of real assets (Real-estate, Transportation, Infrastructure, Aircraft & Ships etc…)
Valuation are based on
- Adequate resources
- Pricing engines
- Master data and input data
- Observable market data such as ratings, yield curves, coupons, maturities, etc …
- Calculated data such as Credit spreads, volatilities, etc…
- Context-Dependent Analysis of Financial Instruments
- Market analysis
- Existing quotes taking into account the level of quality
- Peer Groups and Clusters
- Automated processes
- Verification and certification
Asset based Finance
Valuation of fixed-income securities, promissory notes, loans
A major factor in the valuation is the identification of the spread (risk premium). AVS disassembled the spread into its component parts and the yield components. Theoretically, therefore, we distinguish four different components of the bond yield.
- Issuer specific Adjustments – based on special situations (e.g. M&A, credit quality changes not reflected in rating, pension plans,…)
- Liquidity Premium – Cost for holding the position physically, various estimators possible (CDS-Bond Spread, TED Spread, …)
- Credit Component Kreditkomponente – reflecting credit risk for rating class, covers probability of default and loss given default
- Risk-free Rate – i.g. interpolated swap rate (vs. 6m Euribor)
Valuation of OTC Derivates
We evaluate OTC derivatives in the asset classes interest, currency and stocks. Here one or more derivative instruments may be embedded next to the basic instrument. For the assessment we use, among others following models.
- Other closed-form/analytical Solutions
- Tree-based methods
- Local volatility
- Stochastic volatility (Heston, SABR)
- Stochastic volatility + jumps (Bates, Lévy-Ornstein-Uhlenbeck)
- Monte Carlo Simulation/ American Monte Carlo (Longstaff-Schwartz)
- Libor Market Model
Valuation of Asset based Finance - instruments
Investments in tangible assets such as infrastructure projects, real estate and transport promise based on various providers attractive returns and stable cash flows. However, the risk associated with these financial instruments is very specific with a high degree of illiquidity. Especially in the current low interest rates environment investors should consider exactly where they are invested. The actuall illiquidity of such investments you can always see ex post. This is why fundamental analysis is required. AVS has the necessary data bases for such instruments and selected the following assessment approach:
- Fundamental analysis
- Discounted Cash Flow (DCF) approach
- Cash flows arising mostly from the “Information Memorandum” or the origin or securitization documentation and the other transaction documents
- Discount rate reflects the risk of default
- Understanding of the economic risks is required
- Discount rate must also take into account the risk-free rate and a liquidity premium
- Real estate related instruments (senior, junior) in Europe, USA, Asia, etc…
- Project Financing of Public calibration facilities in the field of culture, transport and road construction
- Infrastructure financing as in the field of energy, transport, etc …
Delivery forms & formats
We supply all relevant evaluation data daily and provide them to our customers through our web-based customer portal FIPCA – “Financial Instruments Pricing and Calculation Application (FIPCA®)”. Customers of AVS can retrieve the data via the Customer FTP. Details and parameters for the valuation are reported on a audit report. We provide data retrieval in the following ways:
- via FIPCA Webinterface
- via SFTP, FTP, SCP
- via automated Email
AVS Client Support supports you and is also available for further reporting and monitoring services with individual requirements; We are happy to offer you customized API interfaces.
Individually agreed Price Challenge Procedures: Strong partnerships need clear rules. We take into account the needs of our customers; we can agree individual Price Challenge Procedures depending on your response times, and resource requirements.
AVS-Valuation Plus®: As part of the extended reporting functions we provide customized information such as master data, sensitivities, risk management information, as well as an individual monthly reporting.
In addition to our quotations and valuations we also have the following products for you in our portfolio.
Market Conformity Check
During a market conformity check it is tested if a deal has been executed at a price level which is in line with its fair value calculated on the basis of a mark-to-model methodology.
During a plausibility check we look at the daily changes of the mark-to-model calculations and evaluate if these changes are consistent with the changes in the underlying reference data, market data and risk factors.
Consulting & Advisory
We are dealing with themes as Solvency, Basel, MiFID, EMIR, AIFMD, OGAW/UCITS, ELTIF bzw IAS, IFRS, HGB in practice and sience.
Reporting and Monitoring
We are happy to offer you detailed reporting and monitoring programs. In addition to standard reporting, we can also provide tailor-made services.
Risk indices such as standard deviation, maximum loss, sharpe ratio, information ratio, Upside and Downside Capture Ratio, Beta or additional information such as credit statements or option indicators (Greeks) could be processed.
The valuation for CDO/CLO Equity Tranches and Combo Notes is calculated on the basis of the waterfall analysis of the whole transaction. Default probabilities and recovery assumptions play a key role in the valuation of these type of securities.
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