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Classification Services

EDG classification services include product and risk assessment, as well as market analyses and studies.

+-Calculation of risk measures for individual products and portfolios

Risk is not static. Market conditions can often affect the risk of a product so substantially that its risk/yield profile changes. Such a change in risk compared to the time of investment can render a product unsuitable. Both market participants and regulators therefore increasingly expect a dynamic risk calculation.

EDG delivers an adequate dynamic risk calculation for different asset classes. The methods applied include:

  • Calculation of partial risks, analysis of the risk components
  • Sensitivities (Greeks)
  • (Historical) simulations
  • Scenario analyses

Project example:
Since July 2005, EDG has offered risk classification based on five simple risk classes which permits a more intuitive assessment of certificate and leveraged product risk. The risk classification of a product is based on value at risk (VaR) which is the established (regulatory) market standard. To calculate VaR and hence the risk class, EDG disaggregates every product into its individual components. The dynamics of certificates and leveraged products are taken into account by risk class updating several times per week. This risk analysis is currently performed for more than 90 % of the products issued on the market.

With its risk classification procedure, EDG supports the transparency initiatives of the German Derivatives Association (DDV), the Certificate Forum Austria (ZFA) and the Swiss Structured Products Association (SVSP).

+-Product Tests

The great variety of products on the securities markets and their constantly growing complexity make suitable product selection increasingly difficult. Although free information is widely available, filtering all that information consumes more and more time. EDG therefore applies a methodology which evaluates the key product characteristics on the basis of an objective quantitative model.

For example: The EDG Certificate Test
The EDG Certificate Test provides investors with a tool for certificate selection which simplifies their product search considerably and delivers sound and sustainable results. This is the first tool that permits comprehensive and methodologically substantiated product assessments. In addition to other procedures, the EDG Certificate Test applies a comprehensive post transaction valuation of all certificates. It also includes a quality analysis of the products by reference to the components cost, trade, credit worthiness and information supply. In addition, the test includes a risk benefit ratio (risk fit) between the product and the specific risk preferences of the individual investor. The test result is monitored continuously and updated once a week.

+-Market Analyses and Statistics

EDG possesses wide-ranging experience and competency in the field of quantitative analyses and statistics on market volumes, market participants, structures and key characteristics of all financial products. For example, EDG analyses the outstanding volumes of certificates and leveraged products in the securities accounts of retail investors in Germany and Austria for the German Derivatives Association (DDV) and Certificate Forum Austria (ZFA). Based on the data obtained, EDG offers a wide range of studies, analyses and evaluations of the certificate market.

 

 

+-Index Design and Calculation

Securities indices provide centralised information about different asset classes. They deliver an initial market overview, make an important contribution to performance analysis as well as benchmarking and thereby support market transparency. Especially institutional clients and banks often need a customised index solution, for example as a reliable basis for comparison.

For example: Certificate indices
Together with the European Certificate Stock Exchange Scoach, EDG continuously publishes the performance profiles of the most common certificate structures. EDG provides the index design and selects the index members.

Indices are computed for the following certificate structures:

  • Capital protected index
  • Bonus index
  • Discount index
  • Outperformance index (computation terminated on 01.01.2012)
  • Reverse convertible index

The representative selection of index members and their weighting with the volumes actually traded on the market ensure an optimal market presentation.

+-Expertise in many regulatory and operational fields

Based on its wide range of services covering all financial products, EDG possesses extensive experience and expertise in all regulatory (e.g. MiFID II, Basle III, UCITS IV-V) and operational themes focussing on quantitative and system-supported analyses. Past EDG projects included the following themes:

  • The effects of regulatory developments on existing product portfolios
  • Development of customised PIB (Product Information Sheet) and KID (Key Information Document)
  • Integration of customer-specific analyst assessments with the universe of available products for investment consulting: generation of a buy, hold or sell recommendation for every product
  • Concepts for a review of the advisory process – focus on cost, risk and product transparency (in compliance with regulatory requirements)
  • Expert opinions (e.g. in the form of court opinions)