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Architecture Series, Part 1: Architecture Matters
By Russell Goyder PhD | November 7, 2012

Risk magazine recently ran an interesting article. To extract a few choice phrases:

  • Before, analysts could be abstract, and mathematical ability was prized; now they have to be pragmatic, and computer programming is the essential attribute
  • the marginal impact on the capital position of any proposed trade needs to be known in advance, which means a complete recalculation at portfolio level and a huge, ongoing drain on computing resources
  • For practising quants, what’s more important, for example, is the ability to compute the impact of every trade on the capital position, and these kinds of problems will probably be solved by engineering means, rather than mathematical

To paraphrase, architecture matters. By architecture, I mean the overall design of a system informed by a deep understanding of the fundamental concepts which underpin the domain and the nature of the information that flows  and interacts when problems are solved in the domain.

Without a well-chosen architecture, you cannot manage the complexity of today's financial world. A portfolio with a range of collateral agreements requires a large collection of carefully constructed curves. Exposure-based calculations such as CVA on such a portfolio require a modelling approach that treats a vast number of risk factors consistently. An organisation faces considerable operational risk without coherent management of its valuations. In short, you can't solve large-scale problems without architecture and today's problems are large in scale.

Over the next few weeks, I will explore this topic with a series of posts on the fundamental concepts and design ideas that must underpin the architecture of a modern analytics platform if it is to scale to an enterprise level.

About the author
Russell Goyder PhD
Russell Goyder PhD
Director of Quantitative Research and Development | FINCAD

Russell Goyder, PhD, is the Director of Quantitative Research and Development at FINCAD. Before joining FINCAD’s quant team in 2006, he worked as a consultant at The MathWorks, solving a wide range of problems in various industries, particularly in the financial industry. In his current role, Russell manages FINCAD’s quant team and oversees the delivery of analytics functionality in FINCAD’s products, from initial research to the deployment of production code. Russell holds a PhD in Physics from the University of Cambridge.