|Pricing Partners extends its inflation module with the market standard “BBK” model - Jun 09|
Pricing Partners extends its inflation module with the market standard “BBK” model
Paris-London: Pricing Partners (www.pricingpartners.com), the independent valuation expert and a world leader in mathematical models and analytics for derivatives and structured products, announced today a successful extension of its inflation module with the release of the inflation market model referred to as the “BBK” model. Based on the quantitative work largely publicized by various publications co-written by N. Belgrade, E. Benhamou and E. Koehler, this extension is fully integrated within the Price-it library. This model endows the inflation module with numerous unmatched business advantages since it enables to calibrate very accurately on market instruments.
The name “BBK” abbreviates from the three authors’ names “Belgrade-Benhamou-Koehler” who have co-written a paper entitled “ A market model for inflation” deriving from a common discovery of the market that real interest rates were useless for inflation modelling as one could not calibrate on these. This work comes from an active and fruitful collaboration with Mr Nabyl Belgrade now Quantitative Analyst at Dexia/professor at University Panthéon Sorbonne Paris I, Etienne Koehler now Head of model validation at Commerzbank/professor at University Panthéon Sorbonne Paris I and Eric Benhamou, CEO of Pricing Partners.
Applying the same strategy as the one for a market model on interest rates, the BBK model provides the no-arbitrage relationship between zero coupon and year on year swaps. Closed forms for convexity adjustment exist and enable fast calibration of the model parameters. Last but not least, calibration against inflation volatility both on year on year and zero coupon cap and floor provides a way to price inflation derivatives consistently.
Nabyl Belgrade, Quantitative Analyst at Dexia, comments: “I am very proud that Pricing Partners integrates our common work. It is a very powerful model and should strengthen significantly the Pricing Partners library. I have worked many years with Eric and Etienne and we have achieved a noteworthy improvement of the previously existing inflation models. Having such a model in the Pricing Partners library gives it a remarkable edge against any other commercial pricing library”
Eric Benhamou, CEO of Pricing Partners adds: “As one of the co-author of the BBK model, it made sense for us to have the seminal BBK model integrated in our pricing library. Inflation is becoming a key topic and we aim at providing our clients the most accurate pricing library.”
Pierre Gauthier, financial engineer concludes “Together with Price-it innovative generic product description, BBK model allows fast and consistent pricing of a wide range of inflation-linked derivatives.”
About Pricing Partners
Set up by former professionals of the trading industry, Pricing Partners offers accurate solutions for derivatives products valuation, pricing tools and risk analytics. Thanks to Price-it online, a SaaS platform, Pricing Partners provides independent valuation from the vanilla to the most exotic financial products on most assets (Interest Rates, Fixed Income, Equity, Inflation, Credit, Foreign Exchange, Commodities, Life Insurance and Hybrid products). Pricing Partners develops and commercializes Price-it Excel, an analytic and independent pricing library using a generic payoff language description which allows the pricing of virtually any financial derivatives. Price-it also supports VaR, CVaR and the most common risk management tools. Pricing Partners is the only company completely mastering the chain of valuation, developing both its own pricing library and a valuation platform giving its clients very accurate and reliable valuation as a result of its intrinsic knowledge of the pricing tools. Pricing Partners solutions can be used by investment banks, buy side firms, hedge funds, financial departments, trading rooms and audit firms.
Pricing Partners has also signed numerous partnerships to distribute its technology with leading institutions like NYSE Euronext (for its independent valuation service via Primesource), Misys (for its pricing library integrated into Summit), CMA or Lexifi. It is also a Microsoft IDEES partner, an IBM, Sun, Datasynapse partner. It is also a member of the grid research consortium GCPMF regrouping BNP Paribas, Calyon, Ecole Centrale, EDF, ENPC, the Inria, Natixis, Misys, Pars VI University and Supelec and a global coordinator of the Credinext consortium, in collaboration with PrimeSource, Lunalogic, the Ecole Polytechnique, the ENPC, the University of Marne La Vallée and the INRIA.
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