Centrus Analytics Services – Treasury professionals are operating in a challenging environment of increased regulation, more diversity in terms of availability of investments and liabilities as well as greater demands in terms of disclosure requirements. This generally requires them to organise their teams and processes more efficiently from a risk management and timing perspective. Challenges such as increased productivity through automation of tasks and strengthening internal controls have been high on the treasury agenda recently. At Centrus, using the powerful combination of treasury and accounting expertise along with sophisticated treasury technology we have been supporting clients through the entire treasury management process. This is from the deal capturing stage, through to information processing and subsequently during the analysis and presentation of outputs.
CVA/DVA Adjustment Valuation
Entities that report under IFRS, either for the entire or a portion of their treasury portfolio, must adhere to IFRS13 Fair Value Measurement which, for the first time for most non-financial companies, requires adjustments to conventional fair value. These adjustments represent a quantitative assessment of non-performance of either the counterparty or the entity in relation to all financial instruments that require fair value measurement – and are respectively called Credit Value Adjustment and Debit Value Adjustment. Understanding what drives the CVA and DVA figures and how these might change in the future is key to understanding potentially volatile movements in the Income statement and the Hedge Effectiveness calculation. Sophisticated numerical analysis is required to produce CVA and DVA numbers which are both reliable and supportable. Auditors will demand a clear audit trail where these figures are material to the financial statements.
We have the systems capability to model clients’ derivative portfolios using reliable, specialist software and the technical expertise to use financial analytics to accurately measure CVA and DVA values. We can use our in-depth market knowledge to design and maintain appropriate credit curves for clients and their counterparties by taking into account ISDA and CSA documentations. At Centrus we have the ability to provide CVA/DVA calculations using both the simpler deterministic based approach as well as the stochastic based approach using Monte Carlo simulations for the calculation of the potential exposure of our clients’ derivatives portfolios.
Our approach is to work with our clients and their auditors in order to establish a CVA/DVA methodology paper before we proceed with the actual portfolio set up and the associated calculations. We will always provide the results of our analysis supported with a comprehensive methodology report that include underlying market data and assumptions.
Sample Case Study
Pennon Group plc – May 2015 and ongoing
Centrus supported the Pennon Group with their first preparation of credit and debit value adjustments to their liability portfolio. Our treasury team were able to add value by providing an independent expert view and methodology using our analytics and systems…Read More Download Case Study