The product, called multi-underlying structured trade, or Must, employs the market model Brace-Gatarek-Musiela (BGM), although users can also add their own proprietary models. The BGM model can represent a yield curve with directly observable forward Libor rates, and incorporates as many factors as required to price a trade. Summit’s Monte Carlo simulation implementation of BGM contains an extended variant that includes market variables such as foreign exchange rates and equity prices. Main factors are then calculated using principal component analysis with correlation matrixes.
“Must is an extremely powerful tool for traders whose business includes highly structured trades that are very difficult to enter – much less price – using traditional front-office trade-entry systems,” said Guillaume Aubert, director of business developments at Summit. “If you know you can accurately price anything and your trade creations are completely supported front-to-back, you have a real competitive advantage,” Aubert added.
Last month, Reuters signed a deal with US derivatives analytics company NumeriX, to offer a suite of exotic multi-asset class derivatives pricing libraries for customers of its Kondor+ flagship risk management system.
The week on Risk.net,October 14-20, 2016Receive this by email