The right price at the right time.

Hi all,

Welcome to this new Monthly Focus edition. This month is about pricing, so hang tight if you are involved in derivatives and structured product valuation.

Today, users have high expectations regarding features such as independent valuations, advanced what-if scenarios, lifecycle event monitoring, global product coverage, document generation, etc. These expectations can be met by joining forces with an expert technology provider to control the costs, accelerate the time to market and reduce the inherent risks of software development projects.

The right price at the right time

The valuation of structured investment products requires a comprehensive pricing library to handle the product diversity traded on the market. One may think that it is the trickiest part but having a large choice of pricing models is just the starting point. The real challenge is finding an integrated cross-asset solution that satisfies both pre- and post-trade valuation purposes while answering regulatory requirements.

Transparency and auditability are paramount for a pricing engine with, of course, a good balance of speed and flexibility. So, let’s dive into LexiFi’s pricing framework to discover how LexiFi Apropos pulls everything together.

Over the last 20 years, LexiFi Apropos has become the main valuation tool for cross-asset derivative product activities across many financial institutions, including AG Insurance, CIC Market Solutions, Garantum, Lombard Odier, Natixis Investment Managers, Ostrum AM, Banque de Luxembourg, Credit Mutuel Arkea, Jane Street, Kepler Cheuvreux, Federal Finance Gestion, etc.

LexiFi Apropos users leverage the engine as they wish by automating batch operations, creating workflows, or going into the details of computations both on the input and output sides.

LexiFi is also providing pricing technologies to other Fintech firms, including Bloomberg, SimCorp, Fact, Luma, etc.

"We have access to a large choice of pricing models in LexiFi Apropos for all asset classes. Plus, pricing and calibration are fast, well documented, and easily audited!"
Jordan CHU, Quantitative Analyst at CIC Market Solutions

Some examples of current use cases among clients taken from LexiFi’s client stories:

  • “Lombard Odier’s secondary market team monitors the Bank’s structured products portfolio using LexiFi Apropos’ interactive displays. Users track the performance of products and underlying assets, control that issuer prices match internally calculated prices, and receive alerts when selected metrics diverge from a user-defined thresholds.”
  • “CIC Market Solutions’ team sends daily independent valuation reports for life-insurance-related products and creates similar bi-monthly regulatory reports for other frequently traded products. The quantitative team regularly audits LexiFi’s valuation models as these are used for the bank’s main issued products. CIC quants perform an annual analysis of the models and their assumptions.”
  • “Garantum’s team automates reports providing investors with custom portfolio indicators. Reports include metrics such as the Long-Term Price, defined as follows: what would be the redemption price if today was the redemption date? Another example is a delta measure to illustrate how each underlying price movement impacts the value of a given product.”

Our solution: fast, sharp, and transparent

Fast: automate valuation reporting

How do LexiFi clients run daily independent valuation reports automatically? And how do they efficiently perform pricing and benchmarking analyses on their entire books - without requiring specific hardware? How do they set up notifications based on pricing results?

The short answer is: integration and auto pricing mode.

Structuring, Advisory, and Risk management teams create custom reports to match their needs taking full advantage of pricing, event lifecycle management, and reporting integration. This integration is ultimately what brings consistency and efficiency to their desks. Our clients usually automate the generation of pricing reports which they export to the desired file format with suitable layouts.

LexiFi Apropos offers an automated pricing framework. Under the hood, our pricing engine picks the model that best fits a given product or portfolio based on a scoring process. Each model is scored given product characteristics, such as the underlying number, early exercise, path dependency, etc. The best-ranked model is suggested as the default model. LexiFi Apropos then queries required market data and automatically runs calibrations. Computational speed and robustness are important factors in the scoring process as it is necessary when running prices on the entire book. Users have the option to explicitly select a model and customize pricing parameters as outlined in the next section.

Sharp: match or challenge counterparties’ prices

When it comes to challenging or matching counterparty prices, users sometimes need to specifically select pricing models and parameters to fit the valuation context. LexiFi Apropos suggests a list of eligible pricing models available with both Monte Carlo and PDE implementations, for all asset classes.

Pricing models and corresponding calibrations are fully documented. Many clients save pricing profiles and calibrations in LexiFi Apropos to share or re-use them when convenient. Market data can also be selected by users: for instance, Risk Management teams often set up an independent market data source in LexiFi Apropos. Market data used in pricing is fully auditable both in tables and interactive charts.

Every pricing operation provides “Extra results” allowing for inspecting results such as cash flow details, probabilities of barrier crossings, and early redemptions. Speaking of inspections, many “Inspectors” are available in LexiFi Apropos to explore pricing results including the Monte Carlo Inspector, PDE Inspector, Curve Inspector, Asset Forward Inspector, Asset Volatility Inspector …the list is long!

Transparent: quantify price uncertainty and investigate the P&L

In an ideal world, there would be no place for uncertainty in valuation. But valuations are fairly exposed to estimation errors and model risk. LexiFi’s Price Uncertainty tool provides a confidence interval for computed valuations. The tool also breaks down the “uncertainty contribution” of all factors involved in the pricing operation: was it the model? or the correlation? the volatilities? to what extent? Price Uncertainty reports quantify and allocate the uncertainty sources for a given pricing operation with numbers and instructive charts.

When investors ask for an explanation about the value change of their contracts over time, LexiFi Apropos users turn to the Value Change Analysis tool. This is another relevant tool for P&L explanation and investigation. It generates a report analysis of factors contributing to price differences for a contract between two different dates.

Many LexiFi clients automate the generation of Value Change Analysis reports, and some set up email notification workflows for investors with the PDF report attached. This analysis is also frequently used to analyze archived prices.

An alternative solution: model-free pricing

Model-free pricing liberates users from restrictive model assumptions.

LexiFi’s Static Replication model replicates a given payoff using only instruments whose prices are easily observed on the market (typically liquid market instruments) or easily interpolated from nearby prices. The payoff is replicated with a weighted portfolio of such market instruments. This is achieved automatically thanks to LexiFi’s internal algebraic representation of contracts.

The main advantages of model-free pricing techniques are:

  • making no assumptions beyond those of standard vanilla options
  • using data available in the market

LexiFi’s Static Replication pricing model hence provides clients with a “market price” for structured product values. LexiFi offers detailed documentation of all its models upon request.

What we're reading LexiFi Quant blog: Pricing decision trees blog
LexiFi Quant Blog: Model Risk Management blog
A Book: Model-Free Hedging;A Martingale Optimal Transport Viewpoint book on model free pricing
What we're watching Interview with: Frederic Lehner, Vice President Structured Products Advisory at Lombard Odier
Watch the interview
Related client stories  CM CIC: ADVANCED VALUATION
Features in focus Pricing
Pricing models
Value Change Analysis
Price Uncertainty
Static Replication

Client stories



LexiFi team