Outsourcing, pricing and risk quantification

Outsourcing. Financial derivatives. Hedge strategies.

It pays to outsource. For many standardized banking processes, the cost and quality benefits are evident. Why not go a step further? One-off tasks, such as new product processes for innovative financial products, require the deployment of specialist expertise for only a short time frame. These kinds of tasks may include:

• Selection of suitable hedging strategies 
   
• Development and implementation of appropriate valuation and risk measurement approaches
   
• Analysis of market and operational risks associated with trading new products 
   
• Adjustment of methods and processes in trading, settlement, reporting and accounting 
   
• Creation of suitable IT solutions

It is not always feasible to permanently employ experts to carry out these tasks. A more effective solution is to let d-fine's specialists provide temporary support to your internal experts. Our team will always be there when you need them. A service level agreement with d-fine guarantees you:

• Rapid response times for your enquiries 
   
• Skilled on-site experts for all professional and technical issues 
   
• Accurate and robust solutions for your specific enquiry
   
• Freely scalable (no 'minimum purchase') 
   
• Structuring of appropriate action plans
   
• Independent assessment of valuation models and risks

What does a service level agreement look like?

We will guarantee certain response times depending on the urgency and scope of services requested. We can provide the services in our own offices or in yours, depending on your requirements.

You will be assigned a designated contact person at d-fine (and a deputy to stand in during annual leave), who is well acquainted with your processes and infrastructure and will handle your enquiries. This arrangement ensures that you are spared the inconvenience of discussing your requirements with countless different people.

As you would expect, the cost structure is also part of the service level agreement. We bill for our services accurately by the hour. This means that you only pay for services that you have actually received, and there is no minimum charge.

The structure of the service level agreement is tailored to your requirements. The following scenarios serve as examples:

Scenario 1:
The trading division wants to expand its product range to include a new type of derivative or a structured product: d-fine offers rapid response and highly-skilled support throughout all phases of the products launch. The process begins with mapping the new product to the existing system landscape within trading, settlement, reporting, risk management and management accounting. Depending on the type of product, this is followed by an analysis of the market, credit and operational risks and the development of an adequate hedging strategy. We can help you to develop a suitable valuation model or to split the product into a number of sub-products that can be valued using existing systems. We can also provide you with support in adjusting your workflows (where appropriate) and offer short-term support during testing.

Scenario 2:
You want to launch an exotic product that cannot yet be valued correctly by your trading or risk system and you want to use an external tool. d-fine can help you to integrate this tool into your existing systems. An automated process means that manual errors can be virtually eliminated.

Scenario 3:
There are products in your portfolio that have to be valued independently of your trading staff at regular intervals for purely regulatory reasons (e.g. in compliance with IAS 39), and it is therefore not worth developing an in-house valuation model. You can entrust d-fine -as an independent third party- with the valuation and thus meet your audit requirements.

What are the costs?

All of our consulting services are billed accurately by the hour. Rates are fixed in the service level agreement for a period of one year. You are only billed for the exact number of hours involved. There are no up-front costs and you are under no obligation to purchase a minimum number of consulting hours. This means that you are not exposed to any risks by signing. In the event that the consulting activities are performed on your premises, a flat rate is also charged to cover the costs incurred.

What are the response times?

Response times will vary depending on the urgency and complexity of each particular request. This is why we offer a range of response times ranging from rapid response  - within two working days - for more straightforward enquiries, to response times of a few days or even weeks involving on-site visits by our consultants. As a general rule, the longer the visit, the more notice we need.

When does it make economic sense to outsource expertise?

• If you wish to enter a new market segment and have yet to acquire the relevant expertise
   
• If you only invest in exotic products sporadically, and cannot therefore justify the recruitment of a full-time employee
   
• If you only want to trade the products in question back-to-back and valuation is performed for regulatory purposes only
   
• If you want to make a short-term investment in model development and only require short-term expertise to kick-start the process 

How do we deal with your requests?

The first step is to contact your d-fine representative. Within only a few hours (no more than two working days) you will receive a qualified response from your contact person which either offers a comprehensive solution, or, for more complex enquiries, provides a solution proposal with a cost estimate.

When dealing with your enquiry, your d-fine representative draws on the extensive experience of our team of over 200 consultants, to find the right solution to your problem. More complex enquiries that require dedicated consultant time of one or more days are handled by d-fine experts with specific experience in processing such enquiries.

What is the next step?

If you have further questions on outsourcing or would like more detailed information on the services that we offer, with no obligation, please contact:

Contact:

Dr Stefan Hengstmann                                  
Tel +852 3711 5800

d-fine Zurich