Numerix Webinar

The Impact of Negative Interest Rates on
Derivatives Valuations & Risk Calculations:
A Case Study Focusing On Japan

The Bank of Japan recently adopted negative interest rates following the lead of several European central banks. Enacted to help stimulate their economies, these rates present big challenges to derivatives valuation and risk assessment in terms of curve construction, volatility quotation, volatility cube construction, and model calibration. Because assumptions as few as five years ago for many derivatives models didn’t allow for sub-zero rates, much of the industry has been left scrambling to adapt to the prolonged and increasingly negative rate environment.

Although there are several proposed approaches on the market to help alleviate the problems (from crude shifts to more flexible adaptations), the potential solutions can have quantitative effects on PnL and Greek calculations. These potential unknowns present challenges to banks who require a consistent modeling framework to properly capture negative rates and have accurate PnLs and risk assessment. And practitioners can’t help but wonder – how will my models react if rates continue to become even more negative?

On Wednesday, April 20th featured speaker Dr. Dan Li Senior Vice President and Global Head of Financial Engineering at Numerix presented a case study on the impact of negative rates for derivative practitioners. It was specifically focused on the Japanese derivative markets since the Bank of Japan pushed rates below zero. He delved into the current modeling challenges in dealing with these rates along with additional pricing and risk implications for financial institutions.

Dr. Li addressed the impact of negative interest rates on:

  • Curve construction
  • Volatility quotations
    • Normal
    • Shifted lognormal (displaced diffusion lognormal)
  • Volatility interpolations
    • Shifted SABR
    • Free-boundary SABR
  • Model calibration
  • Valuations and risk sensitivities

Attendance is complimentary, Registration is required. Space is limited, reserve your seat today!

Featured Speakers:

Dr. Dan LiDr. Dan Li, Senior Vice President and Global Head of Financial Engineering, Numerix
Dan Li is currently Senior Vice President and Global Head of Financial engineering at Numerix. He and his global team of financial engineers closely work with financial institutions to help solve their derivatives pricing and risk management challenges. In addition, Dr. Li is responsible for CrossAsset product management and pricing template development. He has a wide range of practical experience in structuring, valuations and risk management across multiple asset classes, including a deep knowledge of key industry topics such as multi-curve discounting, negative rates, XVAs and hybrid optimization. Prior to this position he served as a leading financial engineering consultant and desk quant for the Lehman Brothers estate.

Dr. Li has published various papers in industry journals and is also a seasoned speaker and presenter of derivative and risk management lectures and workshops for financial institutions around the world.

Prior to Numerix, Dr. Li worked as a Quantitative Analyst on fixed income and equity trading desks in proprietary trading firms in Chicago and performed econometrics consulting in Texas. Dr. Li holds a PhD in Management Science (Finance) from the Illinois Institute of Technology and dual master degrees in Computer Science and Economics (Finance) from Texas A&M University.

James Jockle

Moderator: Moderator: Jim Jockle, Chief Marketing Officer, Numerix
Mr. Jockle leads the company's global marketing efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to customers in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.

Prior to joining Numerix, he served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, Mr. Jockle built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. He also oversaw the brand development of a new company dedicated to the enhancement of credit derivative and structured-credit ratings, products and services. Prior to Fitch, Mr. Jockle was a member of the communications team at Moody's Investors Service.

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