Financial Analytics &

Derivatives Services

Financial uncertainty cant be avoided. But uncertainty from fluctuations in the value of complex financial
instruments can be measured, managed, and leveraged to your companys advantage.
How PwC can help
PwCs Financial Analytics
& Derivatives team includes
professionals who hold
advanced quantitative
degrees in business,
economics, finance and
mathematics. We have access
to state-of-the-art tools,
technologies and models to
assist your company with
the most complex financial
instruments and valuation
challenges.

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

How your company can benefit

PwCs 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.

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.
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.
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.
Contingent consideration (earn-out) valuation: 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 managements forecasts. The resulting
valuation captured the contingent considerations unusual risk characteristics and helped management see the potential income
statement effects of future possible outcomes.

Financial Analytics & Derivatives: Overview of areas served

Asset classes

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

Specialized asset
characteristics
Conventional or
unconventional payouts
Contingent
considerations
Illiquid, non-tradable
Hybrid securities
Other

Services

Business needs

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

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

Our professionals have a broad skill set and field-tested experience working with a wide range of complex financial instruments. We
can assist your company with the analysis and valuation of these instruments, for financial reporting, tax planning or investment
decision making purposes.

For more information contact

Pedro C. Santos
Principal, Practice Leader
(415) 498 7317
pedro.c.santos@us.pwc.com

Dwight Grant, PhD

Managing Director
(415) 498 8116
dwight.grant@us.pwc.com

Harris Antoniades, PhD, CFA

Director
(646) 471 4747
harris.antoniades@us.pwc.com

Tanuj Leekha, CFA

Director
(646) 471 5211
tanuj.leekha@us.pwc.com

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firm is a separate legal entity. Please see www.pwc.com/structure for further details. AT-13-0012