For a long time, we have been concerned by the common practice in Over the Counter (“OTC”) derivative markets of end users conducting all their hedging activity with a small group of their “relationship” banks.

Corporate finance theory has long established that companies should maximise their Enterprise Value no matter who the shareholders are.

Banks have traditionally provided funding and hedging acting as principals. The financial crisis has critically reduced banks’ appetite for risk, thus often reducing their role in several traditional investment banking functions to that of ‘matched brokers’.

Debt Portfolio Optimisation

We use proprietary methodologies to perform Monte Carlo simulation analyses and stress tests on clients’ debt portfolios in the context of their financial plans. By simulating currencies, interest rate yield curves, vols and inflation, we evaluate financial performance and the probability of covenant breaches occurring under different debt mixes. We then advise on short term risk and long term risk-return trade-offs in respect of debt portfolio hedging and funding strategies.

The simulations are based around today’s implied forward market projections and use historic forward prediction errors from market data which is sampled directly (i.e. without parameterisations). In this way, our simulations capture extreme event correlations and the tendency for extreme events to occur more often than extrapolation from historic data would suggest.

Treasury Performance Measurement »