Derivative Valuations


We help businesses by providing advisory services related to derivative contracts in two particular areas:

  • derivative risk management and advising on the appropriateness of derivative strategies; and
  • valuations of vanilla and exotic derivatives.

Derivative Risk Management
The use of derivatives has increased considerably in recent years as companies in a variety of markets seek effective ways to mitigate financial risks. Grant Thornton's Actuarial & Risk team has considerable expertise in helping companies understand how derivatives can be used in this way by providing the following services:

  • quantitative and qualitative analysis of potential derivative strategies to determine appropriateness for client needs;
  • assessment of the risks arising from existing derivative contracts through in-depth sensitivity analysis; and
  • assessment of the potential accounting impact of new and existing derivative contracts.

Derivative valuations may be required for accounting purposes (e.g. FRS 20 or IFRS 2 for employee share options and FRS 26 or IAS 39 for embedded derivatives) as well as for tax purposes, divorce settlements or as part of expert witness assignments.

Many of the contracts valued by the Actuarial & Risk team involve the application of option valuation models. We have in-depth knowledge of the theory underpinning these models and extensive experience in building and applying these models for a variety of contracts. These models range from simple Black-Scholes calculations for vanilla contracts, to Lattice Models and the most complex simulation models designed to value contracts with exotic features.

In addition to ensuring that an appropriate model is used to value a derivative, the selection of the assumptions which are input into the model is also critical, as they are key drivers of the value of the derivative. We use our experience in performing and auditing valuations to ensure that the assumptions to be used in the valuation models are appropriate and supported by robust rationale.

Our key services are listed below:

  • Audit and assurance
  • Business Risk Management
  • Consulting and actuarial
  • Litigation support
  • Offshore and international services
  • Regulatory and compliance
  • Risk and capital management
  • Tax
  • Transactions and restructuring

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