Be complimented for complementing your risk infrastructure

The key to effective risk management lies not necessarily in scrapping existing systems but in enhancing them with complementary solutions that offer accurate and sophisticated analytics.
19 Dec, 2023

In the fast-paced world of trading operations, it is important to have a system that aligns seamlessly with your workflow. However, many traders find themselves grappling with the challenge of obtaining accurate sensitivity scenarios and risk metrics for their entire portfolio. The consequence? A lack of comprehensive understanding of risk, leading to reliance on approximations and workarounds.

When systems fall short, the knee-jerk reaction for some is to consider a complete overhaul, believing that a new infrastructure is the only solution to their risk management woes. However, there’s an alternative approach that often goes overlooked—complementing your current system rather than replacing it entirely.

Inadequate analytics

Inadequate or outdated analytics create significant challenges, limiting your ability to trade in specific asset classes and capitalise on market opportunities. If your analytics fall short of meeting your requirements, seizing opportunities becomes difficult, potentially leading to missed revenue.

Outdated analytics that do not align with market best practice limits your capacity to value assets accurately. There is also the possibility that you are dealing with legacy analytics that lack the flexibility for updates. Given the ongoing market changes, relying on outdated analytics proves insufficient. The solution lies in adopting new, responsive analytics to ensure your ability to navigate evolving market conditions and extract value from opportunities.

“We have been impressed with Quantifi’s ability to remain at the cutting edge of pricing complex securities and building out scalable, easy to integrate technology.”

Sukho Lee, Executive Director, Structured Credit Trading, Nomura

The misconception that an inadequate system necessitates a total revamp is widespread. The truth is various solutions exist that allow you to integrate advanced models seamlessly into your existing infrastructure or complement it to plug the gaps. The key benefit? Access to accurate, consistent analytics without the cost and effort associated with building an entirely new system.

An alternative approach

The key to effective risk management lies not necessarily in scrapping existing systems but in enhancing them with complementary solutions that offer accurate and sophisticated analytics. By embracing this approach, traders can navigate the complexities of the market with confidence, make informed decisions, and stay ahead in the changing landscape of trading operations.

By integrating complementary solutions, traders can gain a holistic understanding of their risk profile. This not only empowers them to make informed decisions but also facilitates effective communication of risk metrics internally and externally, fostering transparency across the firm.

While there are libraries available to traders, such as in DB, they often come with limitations. These libraries may be free, but they lack comprehensive coverage and validation. Trust is paramount when it comes to analytics, and relying on an unproven library can introduce unnecessary risk. It is essential to have confidence that pricing models can handle your specific products and accommodate future strategies.

Two primary challenges stand out in the analytics space—model accuracy and sophistication. Achieving accurate and sophisticated models can be a differentiator in the competitive landscape of analytics. At Quantifi, we pride ourselves on deploying sophisticated analytics that produce accurate numbers to give you the insights you need.

“We wanted a more powerful set of models and analytics. Our decision to work with Quantifi was driven by its strong track record as well as the flexibility and ease of use of the solution.”

David Benamou, Chief Investment Officer at Axiom Alternative Investment

The accuracy of models is crucial in scenarios where trades involve counterparties. A sophisticated counterparty can quote a price that deviates significantly from your model’s predictions, prompting a re-evaluation of your analytics. Additionally, ineffective hedges can lead to losses during and after trades, emphasising the importance of accurate models that align with real market structures.

Efficiency is another key component, especially when dealing with complex trades. A lack of model efficiency can hinder the exploration of innovative trading schemes, such as relative value trades involving multiple products. For instance, a trade involving bonds and CDS requires accurate models for both, as inaccuracy in either could lead to incorrect trading decisions and potential market losses.

Analytics that match the market

Quantifi’s cross-asset analytics are considered the most sophisticated and are trusted by major global banks and leading investment managers. Known for being intuitive, flexible and high-performance, the analytics match the pricing models used by banks for complex derivatives.

With its blend of high-performance analytics, coupled with an institutional-grade infrastructure, Quantifi is at the forefront of helping firms optimise their risk exposures, improve performance and accelerate growth. At the core of its architecture is the most advanced cross-asset library of pricing and risk models available today. Support for all the latest market innovations – including OIS discounting, alternative reference rates and XVA – is provided in an intuitive and uniquely extendible framework.

Through Quantifi’s data science enabled platform, clients can get better insights into their markets by creating bespoke portfolio-level analysis in Python and other languages. Quantifi also provides its analytics as a library, which can be called through programming APIs for seamless integration into diverse systems. This allows clients to effortlessly incorporate Quantifi’s models into their machine learning and artificial intelligence frameworks, enhancing the overall efficiency and functionality of their applications.

With Quantifi, you can respond promptly to market changes, allowing you take advantage of market opportunities and become more competitive.

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