You are an equity or credit derivative trader ?
ALGOSAVE DERIVATIVE PRICING PLATFORM is a tool that lets you easily check if your equity derivative pricing tool takes into account real-life non-normal distribution. It will even allow you to estimate precise Loss Given Default in order to price credit derivatives and CVA. Use ALGOSAVE DERIVATIVE PRICING PLATFORM to BEAT COMPETITION. Say GOOD-BYE to volatility skew and standard 60% LGD and say hello to multi-tail share price distribution and issuer specific Loss Given Default.
As a starter, here are a few distributions of corporate asset value (Enterprise Value = EV)
Let’s start with WALLMART : nice, easy, textbook-like and log-normal EV distribution.
The blue histogram depicts WALMART Asset Value – EV – distribution when WALMART corporate valuation is calibrated both on current market Enterprise Value as well as CDS implied default probabilities. WALMART red histogram is WALMART EV distribution in stressed macro-economic scenario. NO hint of skew, nor any fat-tail. An ideal candidate for Black and Scholes equity derivatives pricing and Merton approach to credit risk pricing. Even the asset valuation return are normally distributed.
Now let’s cross the Atlantic Ocean over to European giant retaillers Carrefour and Ahold and examine their respective EV distribution.
In both cases – consensus as well as stressed macro-economic scenario – both retailers’ EV distribution are not only strikingly double-tailed. They are also real-life and not log-normal at all. It becomes difficult – if not perilous – to use Black and Scholes closed option-formula and reduced-form credit models to price equity and credit derivative options.
Unfortunately, even the “skew” will not really help you as a derivative trader. By working with this chaotic and complex universe, ALGOSAVE DERIVATIVE PRICING PLATFORM, helps you discover new and more powerful derivative pricing capabilities.
Ask for your private access to ALGOSAVE DERIVATIVE PLATFORM, and check how you can BEAT COMPETITION and INCREASE your derivative PRICING POWER