The Greeks in Financial Instruments Valuation

We also specialise in the valuation of complex financial instruments to fulfil the requirements of FRS 32 and FRS 39.

We have done the following (drum rolls please) :

Convertible Bonds, Employee Stock Options, Preference Shares, Warrants

Ok that sounded pretty underwhelming. This is because the above are the majority of what we have encountered with the auditors.

But we are equipped to do more (drum roll again):

Interest rate derivatives, swaps

Futures

Value-at-Risk

Portfolio asset allocation & Simulation

Time-series analysis

Hedging and portfolio insurance

Eyes Roll vs. Drum Roll

Most of the time, our clients start to tear and eyes start to roll when we discuss the maths behind the calculations. However, our point is :

It is useless if you as the technician, fail to be understood, by your client and auditor.

For us, we never lose sight of the business impact from valuing complex financial instruments. We feel sometimes that the accounting standard requirement becomes the tail wagging the dog.

The financial impact from valuing financial instruments is on paper, but that can mean a whole world of difference between breaching a loan covenant or maybe losing that private equity investor because he thinks your business is so loss-making.

All the time, when we value financial instruments, we keep one eye on the technical requirements, and another eye on the Business.