Financial analytics and derivatives

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Financial uncertainty can’t be avoided.  But uncertainty from fluctuations in the value of complex financial instruments can be measured, managed, and leveraged to your company’s advantage.

PwC’s Financial Analytics & Derivatives professionals use sophisticated models and analytical skills to value complex financial instruments and design strategies to reduce risk and maximize opportunities. Situations where your company could benefit from our Financial Analytics & Derivatives Services include:

  • You own or are considering issuing financial instruments or contracts that include contingent payments, convertible features and other embedded derivatives, and need assistance determining fair market value for financial reporting purposes, tax planning or investment decision making.
  • You are looking to hedge the risks of assets or liabilities that are subject to fluctuations in value.
  • You are considering a business venture where you want to maximize the up-side potential while managing your exposure.
  • You are structuring sophisticated compensation arrangements for executives that will help you attract top talent and need help understanding how these contracts will affect your balance sheet and income statement.

How PwC can help

The Financial Analytics & Derivatives professionals at PwC can help your company with financial reporting and tax compliance or help your company manage financial uncertainty related to:

  • Issuing, owning or trading securities that have complex payment structures
  • The effects of exchange rates, interest rates, or commodity price fluctuations
  • Acquisitions or joint ventures that include, or could benefit from, contingent agreements
  • Employee stock options or other management incentive plans

Financial Analytics & Derivatives: Overview of areas served

Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served
Financial Analytics & Derivatives: Overview of areas served

Asset classes

  • Equity
  • Debt
  • Options
  • Warrants
  • Futures
  • Swaps
  • Convertible securities
  • Embedded derivatives
  • Structured notes
  • Loan guarantees
  • Commodities

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Specialized asset characteristics

  • Conventional or unconventional payouts
  • Contingent considerations
  • Illiquid, non-tradable
  • Hybrid securities
  • Other

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  • Pricing/valuation
  • Modelling
  • Model analysis
  • Strategic assessment/advisory
  • Bifurcation of derivatives
  • Hedging

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Business need

  • Financial reporting
  • Tax planning
  • Investment decision
  • Joint venture structuring
  • Acquisition strategy
  • Compensation agreements
  • Hedge effectiveness testing

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Sample projects


Embedded derivatives: A high-tech electronics manufacturer divested a foreign subsidiary using an investment agreement that contained complex put and call options requiring bifurcation for financial reporting purposes. We helped the company and its board to understand the fair value components of the investment agreement and potential future earnings-per-share impact due to quarterly mark-to-market. To fully capture the intricacies and inter-relationships among the put and call options, our valuation analysis combined a binomial model and Monte-Carlo simulation. Our methodology produced defensible results while saving cost and time for our client.

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Management compensation incentive plan: An online financial data services provider, was acquired by a private equity firm using a complicated management compensation incentive plan. We helped value a specific class of common stock issued under the incentive plan, for both financial reporting and tax planning purposes. To fully capture the priority of fund distribution to all securities on the capital structure, we utilized an advanced option based framework to estimate the fair value of the common stock and the incentive compensation. Together with our in-house tax specialist, we provided a comprehensive service to our client.

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Hedge-effectiveness testing

Hedge-effectiveness testing and swap valuation: A large insurance company used a large portfolio of cross-currency and interest rate swaps as cash flow hedge against fluctuations in the value of fixed-income bonds in their structured investment vehicles. We helped identify the instruments that qualified for hedge accounting, estimated the fair value of the swaps and performed hedge effectiveness testing using regression analysis. Several complex issues, such as options embedded in the debt instruments, were analyzed. We also provided continuous training by explaining the methodology used in the analysis and guided the client in the procedures needed to update the analysis in-house.

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Contingent consideration (earn-out): A pharmaceutical firm acquired a research laboratory developing promising new compounds to treat disease. Only a small portion of the acquisition price was paid up-front; the majority was tied to various research and regulatory milestones and sales goals. The sales-related payments were particularly complex because they included lump sums and royalty rates based on aggregate sales over 12 years. We developed a probability matrix to reflect the various possible outcomes and tied that to an option-pricing Monte Carlo sales simulation based on management's forecasts. The resulting valuation captured the contingent consideration's unusual risk characteristics and helped management see the potential income statement effects of future possible outcomes.

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Contact us

Pedro Santos

Principal, PwC US

Tanuj Leekha

Principal, PwC US

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