Quantifi adds enhancements to CDX option models

Quantifi, a provider of analytics, trading and risk management solutions to the global capital markets, has announced that it is releasing enhancements to its CDX Options models in response to client demand and to support market developments.

“The credit index options market has taken the natural next step in its evolution,” says Rohan Douglas, chief executive officer of Quantifi. “Development of a full volatility surface is a significant and very positive sign for the credit markets."

The market has witnessed dramatic growth in the CDS index options market over the last year, with correlation and counterparty risk management desks expanding their use. As liquidity has grown, bid/offer spreads have shrunk and the market has developed to the point where most major banks now actively provide quotes over a range of strikes and expirations.

Quantifi says this increased market depth and liquidity has driven a need for more sophisticated models that capture the dynamic of the full volatility surface and observed skew. The release adds to Quantifi’s suite of models for the CDS index options market. This latest set of enhancements will provide volatility surface modelling to capture the existing skew observed in the market and aims to improve valuation and risk management.

"Credit index options provide an efficient and effective hedge for credit trading desks as well as CVA desks managing counterparty exposure," says Douglas. "Credit index options have continued to grow and develop particularly in North American and Europe. Our credit index option models have evolved in step with the market and are designed to address key issues surrounding the timing of default protection and modelling of idiosyncratic as well as systemic risk.”