Turkish Economy Bank (TEB): Pricing and ALM with FINCAD
Business Objectives
- Support a new ALM project
- Calculate options prices and Greeks, and cash flows for inflation index bonds
Requirements
- Pricing and risk coverage for exotic instruments
- Flexible valuation and risk able to integrate with existing risk system
“FINCAD is one of the best solutions for pricing all aspects of derivative products traded in major financial markets around the world."
- Aksu, Project Manager at TEB, IT side
Challenge
TEB is a partner of one of the world’s largest financial groups, BNP Paribas, and is active in commercial, private and retail banking. TEB set forth on an asset-liability management (ALM) initiative. As part of this project, the bank required the ability to calculate options prices and Greeks, and cash flows on inflation index bonds.
Solution
Consultants working with TEB on their current risk management system recommended FINCAD for help pricing complex instruments.
TEB now uses FINCAD to generate prices and risk sensitiveness of all FX and interest rate (IR) options in their portfolio. “Using FINCAD, we can easily calculate expected inflation rates and cash flows of inflation indexed bonds, the fair value, Greeks, and probabilities of FX and IR options for differentiated and exotic products,” said Arzu Aksu, Project Manager at TEB, IT side.
Results
TEB utilizes FINCAD on a daily basis for pricing approximately 3,000 FX and IR instruments. Their results include:
Quick Start-Up: The FINCAD solution was operational in a rapid timeframe. Using the developer toolkit, the bank was able to set up more than 25% of their products in just three months. “FINCAD is one of the best solutions for pricing all aspects of derivative products traded in major financial markets around the world,” commented Aksu.
Extensive Pricing Coverage: The bank can now price a wide range of derivatives products and do so accurately. “FINCAD offers several differentiated functions and models for pricing FX and IR options. This valuable functionality has enabled us to customize as we need according to TEB’s portfolio,” stated Aksu.
Regulatory Reporting: TEB relies on FINCAD to meet the regulatory reporting requirements of both Basel III and the Banking Regulation and Supervision Agency of Turkey (BRSA). Prices and Greeks generated in FINCAD are used as inputs that feed regulatory reports.
Looking Forward
TEB anticipates that the flexibility of FINCAD technology will enable them to easily adapt to inevitable market and regulatory change.
“FINCAD has given us access to timely, accurate risk data, and the freedom to price a multitude of different instruments. Having these key abilities will be an important part of complying with current regulatory demands and will help us adapt to future changes in regulation and the overall marketplace.”
- Mustafa Ulak, Manager of Risk Management, TEB
