Clarity, transparency, speed and an ability to accommodate and integrate the increasing demands of regulators are all priorities for the creators of technology. These masters of technology also live in a world where there is a need to create models that work across asset classes and from front to back offices. Along with all of this comes the need for a massive acceleration in calculations, but also extreme risk sensitivity.
Today’s market has moved on from the early days, when almost every structured product was based on single or baskets of equities, with the most popular ‘new’ asset classes now including commodities, foreign exchange, interest rates, inflation and, potentially, volatility, if it ever becomes accepted as an asset class in its own right.
Counterparty credit risk concerns – considered to be relatively unimportant until the onset of the financial crisis in 2008, particularly following the bankruptcy of Lehman Brothers – have also ensured that fund derivatives have become a more common feature of the technology armoury. This market has experienced extraordinary growth over the past decade.
Counterparty risk remained paramount given the imposed Basel II and III requirements. Also, capital adequacy concerns have become a bigger issue, especially for larger global banks.
Many financial institutions have started to be more demanding of their risk management, particularly after government interventions and demands for tighter control and regulation.
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