The meeting is over. A decision has been made. You have the mandate to begin working with an external vendor to meet the increased derivative pricing and risk analytics demands of your clients. Time to market is critical, and you don’t have unlimited budget or resources. You have already spoken to a few vendors, as you knew this day would come. But how do you ultimately choose the analytics solution that will be right for you?
Below are some key factors to consider:
One area you should pay close attention to when evaluating analytics solutions is the level of coverage provided by the solution. Your clients likely require broad multi-asset coverage for a range of different trade types including vanilla, exotic, hybrid and structured products— combined with the ability to enable custom payoffs. You will also benefit from a solution offering a sophisticated modelling framework that can help your clients easily build any type of trade, allowing them to move quickly on new investment opportunities as they arise.
Trust & Accuracy
When it comes to your technology evaluation process, you may want to ask yourself the following couple of questions. Is the analytics solution I am considering backed by a solid reputation? Do I know of others in the industry that are using the solution successfully? If the answer is yes, that’s important. Ultimately, you can have greater confidence in a solution that has already been market vetted.
You should also ask yourself, can I trust the numbers generated by the system? That is, is the mathematics library accurate, reliable and aligned with market standards? In addition to on-point calculations, solutions that can provide your clients access to comprehensive sets of industry standard models will also help foster analytical integrity.
It’s worth noting that, in the past, firms would often have to pick between speed and accuracy in their pricing and analytics platforms. But today this is no longer the case. There are robust solutions in the marketplace that are engineered to provide precise risk and valuation calculations in a rapid timeframe.
Ease of Integration
It is essential that an analytics solution allows for ease of integration with your existing systems and software, helping ensure that your clients’ service level is not interrupted as you implement new technology. To help you offer out new functionality quickly, you also need a solution that offers multiple easy to integrate API’s and the ability to map into multiple trade description languages.
Flexibility & Extensibility
An analytics solution that has been built on a foundation of flexibility is important because it allows you to effortlessly scale your implementation as your firm’s needs grow or change. Flexible technology architecture that operates with industry-standard programming languages will provide easier, faster integration with your current systems or ones you choose to add later. Additionally, remember that the quality of the software is often just as important as the expertise backing it up. Whether you are planning to build a desktop application or an enterprise-wide solution, choose a vendor with demonstrated experience that can help you cover all the angles of your project.
To satisfy the requirements of auditors, regulators and investors, your clients need greater transparency into how your systems arrived at given risk and pricing numbers. A robust analytics platform can help by providing users with full documentation of all calculations, models and methods in use, helping establish a full audit trail. Furthermore, the solution should provide detail on all model assumptions and dependencies, and ensure they are managed centrally. This measure will give stakeholders a full understanding of modeling interdependencies and relationships.
Clients trading in the Capital Markets need their risk calculations to be performed quickly so they can make better trading decisions. They need the ability to move from end of day processing to intra-day processing— and will eventually require support for pre-trade processing. To obtain this speed, an analytics system that allows firms to perform on-demand scenario analysis and re-use existing models efficiently is key. Furthermore, the fast calculation of risk sensitivities or Greeks is another important component of robust risk management. In terms of speed (and accuracy) Algorithmic Differentiation is hundreds to thousands of times faster in calculating Greeks when compared to traditional methods like bumping.
Regardless of which partner analytics solution you choose, embedding market-trusted pricing and risk analytics can help you stay focused on the most important part of your business –valuation, risk management and managing data. Importantly, it can also help you enhance your relationships with existing clients and attract new ones, as it provides users the confidence to make critical trading, investment and hedging decisions. Satisfied clients ultimately mean greater revenue opportunity for your business.
To learn more about FINCAD’s partner analytics solutions, view our related video.