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Savvysoft Releases New Multi-Factor Model For Ratchets

Award-winning TOPS suite expands with routine to price ratchet with tree-based Libor Market Model

New York, October 7, 2018 –- Savvysoft announced today the addition of a new model to its award-winning TOPS Suite of derivatives pricing models which prices ratchet swaps using multiple yield curve factors. It is more sophisticated and robust than short rate one factor models.

A ratchet swap mimics a floating rate mortgage. The floating rate paid on the swap is path dependant: the rate gets reset once a year to an index such as LIBOR plus a spread, but the amount the index can change from year to year is limited on both the upside and downside (the periodic cap and floor) and is also subject to a lifetime cap and floor.

The path dependance makes the structure complex, and the shape of the yield curve, as well as the correlation of different points on the curve with each other, impact the pricing of these swaps. Savvysoft's unique multi-factor recombining Libor Market Model (BGM) tree allows for multiple points on the curve to each have their own volatility and correlation with other points on the curve, creating a much more robust set of future scenarios. Whereas other market practitioners are forced to use Monte Carlo simulation to estimate the swap price, which is time consuming and less accurate, Savvysoft's tree-based model is a better implementation.

Thr new Savvysoft TOPS model is available immediately.

About Savvysoft

Savvysoft is a New York City-based provider of award winning OTC derivatives pricing analytics, and portfolio and risk management systems. Savvysoft’s products handle OTC derivatives in every traded market including: Interest Rates, Inflation, Credit, Equities, FX, Commodities, Convertibles, Energy & Electricity. Our products are used by thousands of users from a broad range of financial institutions worldwide. These institutions include top-tier banks, dealers, brokers, money managers, energy suppliers, corporate treasurers, auditors and consultants. Savvysoft was founded by Rich Tanenbaum, the former head of Derivatives Research at Bankers Trust (now Deutsche Bank). Rich was a founding member of the first OTC derivatives desk on Wall Street at Bankers Trust.

All product names referenced herein are trademarks of their respective companies.

Contact: LeeAnn Chen (212) 742-8677 leeann@savvysoft.com


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