New Valuation Methods in HedgePak Reduce Duplicate Code

by Lucido Group

There is a new feature in HedgePak (formally HedgeAnalyzer) that will help many Openlink users retire duplicate code when they upgrade to HedgePak version 8 and higher. In those versions, the application now supports a point-and-click interface in HedgePak to use an existing user-defined simulation result (UDSR) for the value of the hedge component in the hedge effectiveness test.

A HedgePak Valuation Method determines how the module values an instrument as part of the effectiveness tests. Every user we have worked with has had a need to implement a customized valuation method in a plugin that conforms to a rigid structure defined by the HedgePak application.

This is an important technical improvement that we believe will help users – let’s get into more detail.

The Important Roles of a UDSR

UDSRs are solutions frequently designed for the Openlink platform to close gaps, not only in analytics such as DV01, but often for an array of post-trade processing requirements. Many post-trade processes require additional calculations to be performed for a transaction (or a component of a transaction, or for a portfolio of transactions) within the context of a market environment (live prices, closing prices, shocked prices…) and/or within the context of a date (today, 1 year ahead, …).

UDSRs are easily made available throughout the system so development of an extension to the UDSR interface exposes the solution to users from front office pre-trade analytics, middle office compliance controls, back office accounting, regulatory reporting, and much more. Once the UDSR is created, it is available in simulations and ReportBuilder definitions out-of-the-box. With a small, low risk enhancement, existing plugins such as operation services, credit/risk deal scripts, custom GUIs (and much more) can reuse the business logic contained in a UDSR.

Users appreciate the consistency of having a single solution deployed across a broad spectrum of contexts. There is more transparency to these solutions, which every user expects.

HedgePak Welcomes UDSRs

Now, HedgePak users have access to UDSRs as the valuation method.

Prior to this enhancement, it was common to see a Clean MTM HedgePak valuation method and also a Clean MTM UDSR. This is entirely unnecessary duplication. Frequently, the implementation team split down functional lines and the hedge accounting SME never spoke with the front office, or even a second accounting analyst. This approach meant that some teams failed to identify the duplicate code and there were parallel implementations, even implementations of different business logic to calculate Clean MTM.

Now that the HedgePak valuation method may use a UDSR, all users will leverage the consistency of a single method to calculate instrument value. We welcome this enhancement to HedgePak, which continues to deliver strong results for users’ hedge accounting requirements.

Upgrade Planning

There is a conversion required as part of the upgrade to move from the legacy valuation method to a new valuation method based on a UDSR. We have automated the conversion in a plugin to eliminate manually updating existing hedge relationships.

We recently supported a client’s upgrade to Findur version 18, during which the users were almost totally unaware of the changes because there were zero issues encountered in HedgePak during the upgrade.

If you have questions about the conversion effort, please reach out. We are happy to help.

About Openlink’s HedgePak

HedgePak is the Openlink solution to resolve users’ compliance with FAS133 and IAS39. HedgeAnalyzer was renamed HedgePak starting with version 7, released in about 2018. HedgePak follows its own version numbers independently from the version of the Openlink application. HedgePak version 8 is the latest generally available release (as of 2020), supported by clients on Findur version 18.

Also check out our other paper on important HedgePak maintenance tasks here.