Numerix Blog

Financial Engineering Students at UTS to Use Numerix for Training and Research

We’re very pleased to announce our support of the Master of Quantitative Finance program at University of Technology, Sydney with a software contribution worth over $1 million.

Graduate students in the program will be able to use full-featured Numerix software for use in teaching and non-commercial research, giving them a glimpse into the real-world operations of the OTC derivatives and structured products markets.

“Besides the traditional models, Numerix contains many models that are close to the cutting edge on which "consensus has been reached, bugs ironed out and calibration issues sorted. So UTS students can not only practice on industrial-strength software, but are also assured of a disciplined framework in which to learn the mathematics of appropriate and up-to-date models.”
— Dr. Alan Brace, Senior Quantitative Analyst in Market Risk, National Australia Bank; Adjunct Professor, UTS

“On the research front, the implementation of all standard financial market models in Numerix CrossAsset XL will allow QFRC researchers to benchmark their own research against existing models, under actual market conditions.”
— Professor Erik Schlögl, Director of the Quantitative Finance Research Centre, UTS Faculty of Business

“The opportunity to contribute to the education of future quantitative analysts, traders, risk managers and financial engineers is a tremendous honor for us. Using Numerix CrossAsset will provide a perfect complement to the excellent theoretical training that the students already receive, producing well-rounded graduates who can be immediately productive in a practical work environment, whether it be on a trading desk or providing quantitative support.”
—Steven R. O'Hanlon, Numerix President and COO

Read the full press release.

Syntel Launches Pricing Services for Capital Markets, Powered by Numerix

The global IT services and Knowledge Process Outsourcing (KPO) company, Syntel, just announced that it will begin providing independent pricing services to its buy-side and sell-side clients using Numerix CrossAsset pricing and risk analytics. The company will also be combining our models and methods with its own in-house research to offer Asian credit spread data across corporate securities.

By using Numerix, Syntel will be able to deliver enhanced risk mitigation and greater transparency in pricing fixed-income securities and derivatives for its capital markets clients. In addition, Syntel’s clients will be able to better manage counterparty risk and regulatory accounting requirements and risk reporting, including FAS 157, FAS 133 and IAS 39 and Basel II market risk.

“We selected Numerix products to fuel this new service offering based on their broad range of pricing models and methods, built-in world-class analytics and strong architecture,” said Syntel CEO and President, Prashant Ranade.

Syntel’s new pricing offering will complement its existing middle and back-office capital markets KPO services, which include valuation, risk and compliance, analytics and research, transfer agency, performance attribution, fund accounting, hedge fund administration and trade processing.

Read the press release.

Structured Product Trends: Growth, Regulation and Yes—Even Innovation

Yesterday, we hosted webinar on the state of the global structured products with Keith Styrcula, Chairman of the Structured Products Association, and Joe Burris, Head of Americas – StructuredRetailProducts.com. The discussion revealed some interesting trends for the future of the industry:

Sales:

• Invested capital in structured products was flat in 2009, totaling roughly $1.6 tn globally, with new money simply replacing maturing assets. (Source: StructuredRetailProducts.com)
• Tranche sales appear to have stabilized in 2H2009, and are expected to grow 9% in 2010.
• The mega-deals from last Fall have scaled down into the $100 mn range, such as the recent issuance of Ford step-up notes.

Bates Model and Cliquet Pricing in Numerix

Recently, we added the Bates stochastic volatility jump-diffusion model to the Numerix CrossAsset model library. This is the market standard model for pricing exotic options that depend heavily on the forward skew, such as cliquets and other forward-starting trades.

For these types of options, the classic Black-Scholes model [1] is inadequate, because it implies constant volatility. The Heston model [2] extended the Black-Scholes model with a stochastic volatility process, providing close agreement with the implied volatility surface and realistic dynamics for the smile. However, no stochastic volatility model—including the widely used Heston model—can fit short-dated skew without incorporating the possibility of jumps in the underlying asset.

The Bates model [3] does just that, extending the Heston model by explicitly adding a jump-diffusion process. This is more consistent with empirical evidence, providing better calibration to the short-term skew and more realistic forward-skew dynamics.

Numerix Implementation
Numerix supports the classic Bates model, as well as an enhanced version that provides a better fit to market volatilities (more information is available by contacting Numerix sales). It includes support for:

• Monte Carlo simulation, as well as finite difference methods (used for weakly path-dependent instruments such as barrier options or American options)
• The option to draw jumps from either log-normal (Merton) or double-exponential (Kou) distribution
• Use of Bates as an equity component in the Numerix hybrid model framework for pricing structured products with underlyings from multiple asset classes

Applying the Bates Model to Cliquet Options
One of the uses of the Bates model is in pricing cliquets, or “ratchet options.” These are essentially a series of forward-start options, in which the strike price is reset to the current value of the underlying at each option expiration. The cliquet has become increasingly popular as way for sophisticated investors to trade on volatility assumptions. They’re also used in many retail structured products that give investors a lower-risk way to participate in equity and bond markets.

March 31, NYC: Challenges in Risk Management of OTC Derivatives

We invite you to join us for an evening of cocktails, networking and education, featuring presentations and a panel discussion on current trends in risk management from leading practitioners in the derivatives industry, including:

• Gillian Christie, Director, Deloitte, Consulting
• Sanjay Sharma, CRO, Global Arbitrage & Trading, RBC Capital Markets
• Thomas Donahoe, Global Risk Officer, Aladdin Capital
• David Askin, Head of BVAL, Bloomberg
• Serguei Issakov, SVP Quantitative Research & Development, Numerix

Who	CROs, CIOs, Risk Managers, Traders and Operations
When	Wednesday, March 31, 2010 5:00-8:00pm
Where	Microsoft New York 1290 Ave. of the Americas, Sixth Floor New York, NY 10104

Our last event on VA practices was heavily attended, so be sure to reserve your spot (preregistration is required).

We'll also hold a drawing for a Microsoft Xbox and a Zune HD, courtesy of our partners at Microsoft.

REGISTER TODAY