Xtremis

Products Menu

Xtremis....

During extreme markets the normal relationship between financial assets is lost, market movements exceed normal day-to-day amounts and assets become more closely correlated. At the time it is needed most, diversification is no longer possible and popular risk management techniques such as Value-at-Risk break down.

Xtremis is a proprietary risk management methodology that provides protection against extreme adverse market movements and monitors the risk to clients’ fixed income or equity portfolios on an ongoing basis. The methodology is based on the CrashMetrics® and Platinum Hedging concepts invented by Paul Wilmott and Philip Hua. Market crash simulations using proprietary models are used for advising clients on their exposure and risk protection is constructed using our unique Platinum Hedging concept. The trades used for protection include the full spectrum of exchange-traded, and occasionally, over-the-counter products. Protective positions are chosen for their cost effectiveness as well as their performance in capital preservation for large market moves. Various levels of protection are offered from short-term limited loss, limited scenario guarantee to rolling long-term, full scenario protection. Typically, we guarantee, according to best practice, that losses will not exceed a predefined amount.

Advantages of Xtremis:

	Portfolio protection is optimized to minimize worst-case losses
	Hedging is static to minimize cost to the client
	Dynamic hedging is not typically used. This avoids problems associated with illiquidity during crashes
	Static hedging reduces model error
	Unstable parameters such as volatility and correlation are not used
	Constraints on positions can be included (local quantities, such as deltas, and global quantities)