what is product controller's task?

Discussion in 'Professional Trading' started by rics, Sep 2, 2005.

  1. rics

    rics

    why do systematically generated PnLs need to be reconciled to general ledger daily?

    If daily marking to market/model is made automatically, how would product control verify the derivative parameter and valuation?
    :confused:
     
  2. Just to check that all the banks back office records/ accounting are correct every day. Accounting procedure.

    If daily marking to market/model is made automatically, how would product control verify the derivative parameter and valuation?
    :confused:
    [/QUOTE]

    PC need to basically make sure that trader is not marking his book incorrectly vs the market quotes and in doing so making sure the trader is not creating ficticious P&L or giving the wrong impression on the risk front.

    If MTM is automatic, i.e. all market quotes are pulled in at the end of every day and run through the book to give a true P&L on positions held, then there isn't any further need for verification as there is no room for the trader to misrepresent his book.

    I think PC have more of a role in verfiying less liquid positions and more complex structures and also options positions where the valuation is dependent upon the trader's model used for calcualting the price. The model the trader uses is normally tweakable to reflect the view he has on the pricing, in such circumstances there exists an opportunity to falsely represent P&L and checks are made by PC to try and combat this. Simple checks they carry out normally are things like checking the vol used in the model is sensible given historic vols and as compared to competitors quotes. Also, depending on products traded they would also check the credit spreads are sensible vs market etc.

    Checking the overall valuation is a product of the checking of the parameters used in the model. I believe that from a traders point of view the vol is the most manipulable area. The behaviour of the greeks will also be looked at to check sensibility of moves.

    In terms of it mtm automatically, all the parameters such as strike, time to expiry, interest rate and the spot rate will be handled automatically by the model. It's the vol input that would probably be handled by the trader when he marks his book daily. However, if this is also taken automatically from say the BB historic vol func, then PC's job would just be one of checking it's correct - accounting function.

    Hope this helps out. :)
     
  3. rics

    rics

    Tks a lot! It is really a great answer in detail. I appreciate it!:)