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.
Valuations
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.
To find out more about some of our key services please click on
one of the links below: