Markit said today that its Portfolio Valuations service now offers independent valuations for power reverse dual currency notes (PRDCs).
PRDCs allow investors looking for a better return and a borrower in a different country seeking a lower rate of interest to use the interest rate differential between the two. The PRDCs covered by Markit will include several currency pairs, pay-off structures and call and redemption features.
“Clients, driven in part by regulatory changes, are increasingly supplementing their dealer marks with independent pricing sources for complex, illiquid products like PRDCs," said Nigel Cairns, managing director and global head of analytics and portfolio valuations at Markit.
PRDCs are complex to value because they are usually leveraged, have bespoke pay-offs and pay foreign currency yields in the buyer’s domestic currency. They can also have embedded digital and barrier option features, which can also complicate price calculation.
Markit uses portfolio valuations service validates its calculations using a range of data and industry-standard models to value the foreign exchange (FX) and interest rate (IR) components of the structure, using the full FX option and IR swaption volatility surfaces and FX-to-IR implied correlations embedded in PRDCs.