Financial Instruments Valuation Services

We are constantly monitoring changes in auditing standards, including ISA and PCAOB, to ensure we are in line with best market practise, assessing the relevance and reliability of external vendor prices for various security types:

•  Equities and exchange traded derivatives: We assesses various details including exchanges, traded volume and activity, and bid/ask spread dispersion in assessing exchange prices.
• Debt instruments: External vendor details are compared on a security level, considering price availability and dispersion, as well issuer details, credit quality and collateral type. Our team can also use bespoke cashflow models for structured products and hard-to-value securities, like CLOs and other securitised products.
• CDO/CLOs: Our team can assess the credit risk of the collateralising assets of CDO/CLOs, giving clients assurance as to whether these products are following risk retention rules.
• Loans: Prices are determined based on broker quotes, which are evaluated carefully and  methodically to ensure quality.

Our team provide OTC derivative valuations, using models in line with best market practise:

•  FX and commodity forwards: Valued internally for a wide range of currency pairs and commodities, considering delta shifts of underlying rates to assess impacts on market values.
• Swaps: Various types of swaps are assessed, including plain vanilla fixed and floating interest rate swaps, cross currency swaps, inflation swaps, credit default swaps and total return swaps.
• Options: We assess OTC options by using generally accepted models like Black-Scholes, with an emphasis put on maximising observable inputs and considering greeks to assess impacts of inputs on market values.

With the use of internal models, our team can measure and adjust counterparty risk for OTC derivatives, ensuring robust risk manageframework and fair value alignment. These models enable precise calculations of Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA), two critical metrics in the valuation of derivatives:

•  Swaps: Various types of swaps benefit significantly from the application of XVA adjustments, including interest rate swaps, cross-currency swaps and credit default swaps. These XVA adjustment allow us to incorporate credit risks, yielding a risk-adjusted fair value and ensuring compliance with regulatory standards.
• Options: Interest rate options such as swaptions, caps and floors also require XVA adjustment as they can be exposed to counterparty risk over potentially long tenors. By applying CVA and DVA, our model accounts for the creditworthiness of both the counterparty and the institution itself, creating a balanced assessment of the option’s fair value.

• Purchase price allocations (PPAs) are conducted using methods such as relief from royalty, with-and-without and multi-period earnings, incorporating contributory asset charge calculation to assess the value of acquired intangible assets.
• Independent valuations and valuation reviews are conducted in accordance with IFRS 13 guidelines, primarily utilising the income approach and market approach. The expertise of the team also includes the valuation of share options, warrants, convertible debt and multi-class shares, emplying the back-solve method where applicable.
• We assist in determining the fair value of credit instruments, including structured loan notes, bonds, related-party loans, convertible loans and PIK notes.

We assess various factors to conclude on fair value hierarchy levelling:

•  For securities, factors including traded volumes, frequencies and bid/ask spreads are considered.
• Uses of observable inputs are maximised in valuations using models, and when unobservable inputs are used, stress tests are considered on these inputs to evaluate their significance.
• Overall, our team considers each of liquidity, transparency and complexity when assigning fair value hierarchy levelling, giving our clients confidence in a field that is often charactarised by subjectivity.

We understand that navigating the complex landscape of regulatory compliance is crucial for our clients. We prioritise regulatory compliance on pricing policies to safeguard investments and ensure adherence to the latest industry standards:

• The comprehensive approach taken by our team ensures valuation practices align with lebal obligations, reducing the risk of penalties and enhancing clients’ reputations in the market.
• We provide expert guidance on compliance frameworkds, helping clients implement robust policies and procedures to meet regulatory requirements.
• Partnering with our team allows clients to focus on investment stratgies while the intracacies of compliance are managed with the guidance and support necessary to thrive in a regulated environment.

We understand that our clients require support in their assessment of financial statements in connection with performing substantive test procedures on the share based payment structure.

•  Our team has the capability to build bespoke models to consider all the risks and structural impacts caused by dividend yields, vesting schedules, and volatility of peers.
• The key considerations we consider include data intensity, quantifying acceptable ranges, valuation approach, market instability, path-dependence, correlations, and parameter calibration.