Solution Spotlight

Risk-adjusted pricing is a matter of survival

Complexity Made Easy

Regulation and technology have made derivatives

trading more complex than ever. Market conditions
demand that trading and pricing must accurately
reflect all risks market, credit and liquidity. Capital
intensive positions need to be identified, restructured,
unwound or sold. Collateral and netting, now integral
to all-in pricing, require optimization. A finite pool of
liquid assets increasingly is driving hedging and capital
usage decisions by banks. Credit models must improve
to include collateral, liquidity, clearing and treasury
impacts. Enter XVA.

What is XVA all-in pricing?

One of the main drivers for trading is the all-in price. This
requires calculation of credit, debt, margin, funding and
liquidity value adjustments known as CVA, DVA, MVA,
FVA, LVA respectively. Or collectively: XVA.
The resulting all-in price reflects the fair value markto-market of each trade versus the existing portfolio. It
enables accurate deal pricing, P&L, risk allocation, book
running and funds transfer pricing per trade.

The number one problem in implementing XVA is

data. Calypso Front Office delivers unified pricing,
risk and collateral management for both CCP cleared
and bilaterally settled trades all on one platform.
Consistent pricing supports optimal risk-taking and
hedging. It improves P&L accuracy and enables efficient
allocation and usage of capital across business units.
Calypso is one platform. The front office works
seamlessly with middle and back office to deliver
efficient trading, risk management and processing across
all asset classes.
Calypso Front Office performs XVA calculations across
all major product types including FRAs, vanilla IR swaps,
amortizing and CMS structures, FX forwards, crosscurrency swaps, swaptions, caps/floors and FX options.
Key risk functions include:
Reporting at the level of the legal document
Bucketed sensitivities for credit and interest rates
Interest rate/credit and FX/credit cross-gammas
Sensitivities for implied volatilities

One cross-asset FTB platform for

trading and risk
Full XVA incl. CVA, DVA , FVA, LVA, MVA
All-in pricing for cleared and bilateral
Eliminates fragile data feeds and
complex synchronization
Pre-trade risk analytics
Near real-time performance

Calypso XVA-adjusted all-in pricing is delivered

directly to sales and trading desktops in real time with
complete integration to middle and back office. This
enables responsive and informed trading decisions that
leverage real-time connectivity to collateral, netting and
margining. Pricing models and risk analytics are centrally
managed and available throughout the system globally,
eliminating problems of front office only pricing models in
spreadsheets and standalone calculation engines.
Traders have the flexibility to combine XVA value
adjustments inside Calypso in any permutation required in
accordance with their risk policy including:
Bilateral CVA
FVA cost or benefit
XVA by counterparty or legal document
Real-time incremental XVA vs. existing portfolio
Transfer pricing to the client

Calypso XVA Simulation

Calypso Front Office performs real-time incremental

pricing against the pre-calculated portfolio. Simulations
are performed on interest rate curves and FX rates using
across-currency Libor Market Model. The Model takes as
input calibrated swaption and FX volatilities, along with
credit curves.

The business is benefitting from improved

operational efficiency, in the region of 60%, and speed

of execution which has resulted in fewer errors, quicker
response times and reduced operational costs.

Frdric Coudreau
Head of Capital Market Operations,
Credit Agricole CIB

The simulations fully reflect any netting or collateral effects

which result from CSAs or cleared margin agreements at
portfolio, counterparty or trade level. The simulations
produce all standard profiles with configurable time
buckets and maturities.

Complex Data

Calypso Front Office supports full XVA book running

functions from pricing, risk and collateral management
including:
Cross Asset P&L
Greeks based hedging
Trade capture screens for all hedges
Trade blotters
Position management
Client credit curve construction methodology
OIS discounting for IR and FX trades
Netting, funding, basis and credit risk analytics
Integrated collateral capability
Initial Margin modelling
Counterparty selection based on position offsets
Pricing with mandatory breaks

Calypsos single integral platform eliminates the need for

interfacing or integration.

The Calypso XVA trading desk functions like any other

trading desk monitored by Treasury and Risk. It operates
as a price maker, running daily MTM and hedging activities.

All analytics are available on traders desktops and

seamlessly interact with the Calypso database allowing
interoperability with: Collateral inventory; Collateral legal
agreements; Margin calls; Market data; Reference data;
Transaction data.

Grid Computing

Calypso Front Office deploys calculation grid to enable

massive real-time analytics computation on the entire
portfolio. It employs off-the-shelf hardware making it a
cost effective solution.
The Calypso Front Office solution runs on Calypsos
flexible and versatile cross-asset front-to-back platform
an adaptive enterprise infrastructure specifically designed
to improve and evolve with changing markets. Clients
benefit from a durable solution that delivers immediate
improvements today and the ability to meet future
business needs.

2014 Calypso Technology, Inc. All rights reserved. Calypso is a registered trademark of Calypso Technology, Inc., in the United States, European Union and other jurisdictions. All products and services referenced herein are either trademarks or registered trademarks of their respective companies