More & better-quality business with risk-protected clients = a win-win !
Algosave attacks a tough cookie and proves that in “right way risk” transactions, CVA charge for uncollateralized counterparty is close to ZERO.
We believe that thanks to Algosave granular and structural approach to credit risk, our client – you – benefit from near-to-zero CVA charges on client hedging transactions.
We would even argue that – as a consequence – your Bank benefits from an unfair competitive advantage in its core lending business.
Let’s discover if those strong statements hold waters thru the following example.
• Background : let’s assume that your bank is – in its region – the most successful bank in financing gas producers.
• Question : What is the CVA charge of a gas producing counterparty doing all its business with your bank, from borrowing to hedging its future gas selling price (with a
combination of OTC forward sale and zero premium collar) ?
Answer : From Lower CVA to more competitive lending
• Computed with traditional models, CVA charge of those typical natural gas related hedging transactions will be large.
• However, thanks to Algosave derivative pricing platform, your bank can factors correlations between :
a – lending,
b – hedging and
c – the counterparty core business
• By doing so, Algosave derivative pricing platform shows that your bank substantially cuts the CVA charge : indeed, in this “right way risk” transaction, this hedging-related CVA-charge is close to zero,
• Your bank also prices more competitive lending transactions : the gas producer has secured its forward selling price, thereby protecting its credit metrics and securing future debt redemption and refinancing capacity. More and better quality business with risk-protected clients : a win-win !