Flexibility

The PLATSON solution allows for further benefits:

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1. Risk can be projected onto a new Basis eg. instead of 2y and 10y, it can easily be translated to 10y and 2s10s risk.  The PLATSON solution can help identify the factors that optimise the basis for risk management. (More details basis change below)

2. Scenario Analysis no longer needs to be run separately -  risk can be multiplied by any scenario (faster, more flexible) 

3. Accurate hedging can lead to reduced bid/offer - potential for market share increase without reducing profitability and can improve swap quoting of forward swaps

4. Improved dynamic predictions of PL and Risk and minimisation of unexplained risk and PL significantly improves resource allocation across trading and risk oversight – ie less time spent investigating PL breaks

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New Basis

The most common example of risk re-projection (change of basis) is PCA - this defines a new basis, where each vector is ranked by variance, highlighting the most significant risks in a portfolio. 
PCA is only one example of risk re-projection - risk could also be projected into liquid market quoted instruments, such as particular outright points, spreads and flys which better define the way traders hedge risk
 

Eg a market with only 2 swaps -2y and 10y.  but the only liquid traded products are a 10y outright swap and a 2s10s spread.  Using PLATSON, gamma can be defined  in terms of 10y and 2s10s rather than currently in terms of 2y (not traded outright) and 10y

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Midcurve and Spread options 

• Spread options have no outright gamma so are very poorly represented by traditional (parallel) gamma techniques.  Similarly midcurve options create significant risk and PL prediction errors under traditional gamma.
  By using the PLATSON solution, both these issues can be resolved and gamma of a hedged midcurve option could even be re-projected as a single bucket of risk hedgeable by a spread option.

• Interpreting risk in an intuitive basis can allow for new strategies Eg dispersion portfolios (Long 1y4y straddle , Short 1y1y, 1y opt onto 1y1y fwd , 1y opt onto 2y1y fwd , 1y opt onto 3y1y fwd straddles )to be traded

• Similarly, cap/floor gamma may be more intuitively represented on a forward representation of the curve.

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Foward Swap e-platform
Forward swaps are in high demand but rarely quoted electronically due to the leverage involved.

Traditional Gamma is unsuitable as a tool to represent the curve risks and dynamics of a Mid-curve options portfolio.  

Both instruments are driven by the volatility of the forward swaps

By using the PLATSON Solution on a mid-curve portfolio, gamma can be expressed in terms of forward swaps.  This expression can thus feedback to the pricing of forward swaps and vice versa whereas currently this is not feasible - this could allow for a more responsive e-trading platform for forward swaps

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