Pricing and Analytics

QUANT STUDIO

The pricing models for kACE exotic maths are carefully designed to work the way a market practitioner would use them in the FXO and metals markets.

We focus on producing both an accurate price and also a tradable bid/ask spread, that can be immediately quoted, without the need for manual intervention.

Our solution includes:
  • A variety of pricing models built for market practitioners (see below)
  • A customisable suite of volatility surface interpolation routines
  • Market convention management for currency pairs, dates and formatting


Pricing models

Local Stochastic Volatility Model (LSV)

LSV incorporates the latest methodologies to provide the most accurate market pricing and spreading of first generation digital and barrier options.

  • Supports the pricing of all first generation digital and barrier products (20 in total)
  • Window barriers are supported (16 in total), as are quanto options on barriers and window barriers
  • Supplied with a calibration data feed for 60 top currency pairs
  • Ability to self-calibrate the LSV model for any currency pair.


Monte Carlo Model

kACE’s Options products utilise an expanded Monte Carlo plug-in that fully supports LSV-type models, Target Accrual Redemption Forwards (TARFs) and window barriers.

  • Supports the pricing of 16 different types of window barriers including single and double barriers, as well as single and double digitals (touches)
  • Provides flexibility to price all TARF classes and window barriers, either by a fast analytic model or a Monte Carlo model that supports term structure of volatility and interest rates, local volatility or local stochastic volatility


Vega Model

The Vega Convexity model is based on a Vanna-Volga approach to pricing first generation exotics. The Finite-Spread model uses a measure of the slope of the vol surface, which can be used for European barriers and digitals.

  • Supports the pricing of single and double barrier and digital products (20 in total)
  • Facilitates transparency and efficiency through direct entry and display of volatility smiles using market-traded butterfly and risk reversals
  • Supports automatic weighting and theoretical value adjustment (No Touch, or Expected Life), without the need for further calculation
  • Provides automatic algorithmic spreading of price for all classes outside the conventional techniques applied to vanillas


PRICE DISCOVERY

FX options and metal options

kACE leverages mathematical models and independent market data to provide consistent market value pricing for both vanilla and exotic options, across multi-leg and multi-currency strategies.

kACE also allows users to instantly access market-maker liquidity within kACE options pricing.

Our solution features:

  • Quality mathematical models, verified against actual, real-time traded prices from BGC Partners’ brokerage desks, to ensure accuracy of pricing
  • Users can select their preferred pricing methodology from a number of high quality providers
  • We provide support for first through to third-generation exotic options
  • Users can access proprietary or third-party mathematical models through the kACE interfaces to price options
  • kACE delivers a real-time FX option data feed direct from the brokerage operations of BGC
  • kACE also enables banks to receive data from internal broadcasting services, data vendors and other internet-based sources


Interest rates and FX

Our FX pricing engine is backed with a sound theoretical foundation and reflects current market practice. Its dynamic architecture allows prices and calculations to quickly adapt to external events and changing data.

Backpressure and conflation are both handled automatically, so no computing power is wasted. This allows the pricing engine to always operate at optimal performance levels.

Curve construction

  • Interest rate curves, for 1m, 3m, 6m and 12m periods, using Fixings, volume weighted mid futures and a variety of live interest rate instruments as appropriate
  • Futures prices are calculated from bid/ask prices weighted (if desired) by size interest and adjusted for futures convexity in real time
  • Interest instruments used include: forward rate agreements (FRAs), interest rate swaps (IRSs) (either live or spread over government bonds/futures) with predictive cut/hike methodology
  • Where applicable discounting is through overnight index swap (OIS) curves
  • Stepped OIS curves, built from Fed Fund futures (or other currency equivalent) or alternatively from Central Bank meeting to meeting dates market data
  • Allows FX forwards and non-deliverable forwards (NDFs) to be implied from Kalahari’s sophisticated interest rate curves (as well as non-deliverable cross currency swaps and cross currency swaps)
  • Provides the ability to add events and turns to FX curves ensuring accurate incremental pricing to your desk and ecommerce solution
  • Medium term FX forward pricing from IRS curves (or other currency equivalent) or alternatively from Central Bank meeting to meet-ing dates market data


PRICE MANAGEMENT

FX options and metal options

When it comes to price management, the kACE solution has a number of advanced
features for the FXO and metals options sectors, including:

  • Volatility surfaces manually managed in kACE or imported from real-time data platforms or spreadsheets
  • Volatility surface management, including event management
  • Market data spreading
  • Rules to determine whether requests are quoted by the system or routed to users for manual quoting
  • Volatility surfaces sourced from the electronic and voice brokerage operations of BGC Group
  • Real-time feed of OTC market data that includes spot, swap or forward outrights and USD deposit rates
  • Calibration data feeds to support the use of local stochastic volatility (LSV) maths models (Log-normal, Heston)


PRICE DISTRIBUTION

FX options and metal options

Sales is an advanced component available within kACE Pro, which gives sales personnel and sales traders the independence to quote accurately and directly with traderbacked prices. They can also generate term sheets at the push of a button, helping them to improve accuracy and save time.

A complete sales solution in one platform

The Sales component features:

  • Internal distribution of products to the sales organisation via kACE or existing interfaces, or bespoke front-end applications
  • External distribution of products to clients via multi-dealer platforms or bespoke frontend applications
  • Customer tiering and full record keeping of margin across stakeholder desks
  • A dealing engine that automates client price generation and distribution
  • Easy customisation of workflow and rules for tradability
  • Tools such as graphing, product idea generation, term sheets and confirmations
  • Configurable term sheets and confirmations for client branding
  • Custom strategy design with instant distribution to sales personnel
  • A completely electronic sales to trader RFQ workflow
  • Full control over rollout of new structures and complete audit trail of RFQs


Interest rates and FX

Our data publishing module distributes prices and calculations to a wide variety of destinations. This is particularly beneficial for clients with both internal and customer-facing ecommerce platforms.

Control and safety are essential parts of our solution. If any price made breaks a pre-set rule, it will be automatically withdrawn from the market and the ecommerce platform will revert to displaying no price for that product.

Key features include:

  • An integrated, easy-to-use publishing dashboard
  • Full support of multiple publishing targets
  • Global/regional/local spread management
  • Ability to skew and spread individual targets as groups or individual tenors
  • Option to publish curve to middle-office systems
  • Full validation and flexible throttling of outgoing data to ensure downstream systems are not flooded
  • Specific rules that withdraw published prices but also offer control if the validation fails


CONNECTIVITY

kACE Gateway is a kACE-hosted messaging hub that provides two-way communication between a customer’s kACE TS deployment and the many participants of the FX derivatives ecosystem.

  • Inbound straight through processing (STP) of trades to kACE TS (e.g., from selected execution venues)
  • Outbound STP from kACE TS to trade repositories or trade processing systems
  • Order routing mechanism (kACE Deal Manager) to execution venues
  • Transmission of position values out of kACE TS (for example, for valuation purposes and trade repositories)
  • Market data contribution to the kACE community and beyond.


kACE Gateway can offer connectivity to the following venues:

  • Single dealer platforms (SDPs)
  • Multi-dealer platforms (MDPs)
  • Exchanges
  • Trade repositories (TRs)
  • Central counterparties (CCPs)
  • Middleware connectivity solution providers
  • Other kACE clients


kACE Gateway: Key benefits

  • A single connection to multiple venues eliminates the need to build a myriad of different connections and interfaces
  • Improved execution through access to multiple liquidity sources for price discovery and RFQ
  • Post-trade STP from single- and multi-dealer platforms removes the need for manual ticket capture and increases the speed of transaction processing while greatly reducing the danger of operational errors
  • Connections to trade repositories and CCPs help users to comply with complex global regulatory requirements as a direct extension of their existing workflow
  • Access to, and interaction with, the kACE community


Technical

  • kACE Gateway uses the market standard FIX messaging protocol
  • Messaging traffic encrypted via HTTPS
  • 24/5 kACE support monitoring connectivity to ensure no loss of service
  • Ability for putting prices on screens