VALUATIONS & MODEL REVIEW

Models are used everywhere within financial markets. 
 

Whether it is in the context of valuing companies or assets, or analyzing trade or marketplaces, the ability to build, use and scrutinize financial models is paramount.

Even "experts" often get it wrong.  Sometimes, they build models that are too complex or unwieldy.  At other times they are too simple to capture the true intricacies of the investment or portfolio.  They may be over-fit, incorporating too many unrelated variables, or under-fit, failing to adequately accommodate key variables. 

Our industry experience is key when building models or validating the outputs of models built externally: it enables to have a stronger understanding of the context and the conditions, and to establish whether the model inputs and right and appropriate.  We also have a keen understanding of the limits of models, and what we can and cannot learn from them.

In the context of litigation, or otherwise, our team performs regular model reviews, particularly in the areas of valuations and market efficiency.  Our independent model reviews include:

  • Asset Pricing Models

  • Risk Measurement Models (asset- or portfolio-level)

  • Portfolio Risk-Return Models

  • Economic Capital Calculations and other Optimization Models

  • Credit Risk and Credit Rating Models

  • Stress Testing

  • Simulation Models and Waterfall Models

 

Our team’s diverse background allows us a different perspective, as we develop our viewpoints from a combination of buy-side, sell-side, risk, rating agency and legal perspectives. Our direct access to key market participants and to intelligence about market developments and the latest trading levels also gives us an invaluable edge.

In addition to our examination of quantitative market data, like credit risk metrics, our analyses regularly draw on the high priority we afford to understanding idiosyncrasies in each market.

For complex assets, we work consistently to understand:

  1. the types of trades moving the specific markets and their complex incentive structures;

  2. the legal structures of the investments;

  3. the upside potential for the asset class or strong asset management; and 

  4. the risks associated with mismanagement or the potential for adverse selection of portfolio assets. ​​


In the context of private investments, it is critical to gauge questions of liquidity (or marketability) of the securities, and issues like controlling interests or voting rights.

Asset and Portfolio Valuations

PF2 employs scientific techniques to understand financial markets and analyze securities, often for buy-side investors wanting to perform thorough due diligence or risk management, or for managers looking for independent oversight or analysis.

Model Building

PF2 builds customized financial models on a by-request basis. 

Clients tap into our coding skills and markets expertise to tailor models to meet their needs or to produce outputs in the desired format.

Public Sector

Credit Framework

PF2 supports the creation of the PSCF, an open source framework for analyzing and rating sovereign, state and municipal bond issuers. Visit the Center for Municipal Finance to learn more about the initiative.