Numerix: Agile Analytics: The Future for Trading Operations

CIO VendorSteven R. O'Hanlon, CEO & President, Numerix The financial catastrophe of Lehman Brothers in 2008 created an outcry throughout the world. The bankruptcy marked the beginning of a ferocious global economic downturn. However, this catastrophe also initiated a period of technology revolution as the gaps in financial institutions’ risk management practices became glaringly evident.

Eight years later, institutions are making a significant investment in real-time risk management systems not only to make better informed trading decisions, but to gain operational efficiency, and comply with new regulatory standards.

Through the investment of billions of dollars globally to improve trading infrastructure and risk management practices, many firms adopted key technologies for data management and cloud computing. Another area that emerged was the requirement for agile analytics— analytic pricing and risk management models that are flexible, scalable responsive and can be utilized enterprise-wide. With this new market, one company, Numerix, emerged as a pivotal player in the future of risk management.

The Emerging Leader in Risk Managemen

The watershed moment for Numerix was actually in the wake of the fall of Lehman Brothers. With trillions of derivatives outstanding in the marketplace which needed to be reconciled with its counterparties, Numerix was selected on behalf of the Lehman creditors to value millions of terminated trades. This was arguably the most complex derivatives portfolio in the world.

“The Lehman unwind represented every kind of pricing structure imaginable, and as we worked side-by-side with the Lehman traders and IT staff, it was clear that a more integrated and holistic approach for managing risk was not something that was nice to have, but a requirement,” said Steven O’Hanlon, CEO, Numerix. “Though this experience we saw an opportunity to look at risk differently.”

Fast forward to today, the requirements for real-time and holistic risk management are driving the three core areas within banks—front office trading operations, middle office risk management and back office treasury operations-to streamline. Given Numerix’s front office history and scalable offerings, the company is uniquely positioned in today’s marketplace, as traditional enterprise risk management companies could never satisfy the demands of traders.

“Our experience in helping financial institutions weather the financial crisis drove us to develop a single analytic platform,” says James Jockle, Chief Marketing Officer, Numerix. “Unlike other risk-focused organizations, not only could we quickly cover any financial product within a portfolio, but we possessed the ability to capture all correlations among underlying risk factors across asset classes.”

The first key market infrastructure change driven by new regulatory oversight was the introduction of Credit Valuation Adjustments as part of the derivatives valuation process.

Both a technology challenge and a quantitative finance challenge, the introduction of this new risk measure created the perfect opportunity for Numerix to enter into the Enterprise Risk market.

We have proved that we can tackle the pricing and risk business, shape it own it, and perhaps define it

“Given our deep quantitative roots, we were quickly able to bring CVA to market and position ourselves for what ultimately became an entire offering of required pricing adjustments,” says O’Hanlon. “The combination of being able to deliver the complex math along with ability to provide on-demand real-time calculations, versus the batch processing all other risk companies were delivering at this time was a gamer changer for us.”

“As we’ve conquered real-time risk in the front-office, today we also seek to deliver a merged view, or one view where the Chief Risk Officer is able to leverage the greatest levels of combined risk insight in the front and middle office to determine where risk will be on a moment-to-moment basis in the future.”

The firm’s single platform approach for holistic risk management enables Numerix to assess both pricing and risk consistently—with complete flexibly and unprecedented levels of transparency.

“A key advantage to being Numerix is our ability to navigate turbulent waters with clarity and vision. This has always helped us to anticipate where the market is going in terms of risk technology requirements, and deliver innovative solutions and analytic capabilities that are flexible, scalable and customizable,” adds O’Hanlon.

A Unique Heritage

Numerix maintains a bigger quantitative and technical staff than most banks and as its evolved has added more market practitioners. As a result, as the market approaches a tipping point where front office risk and market risk are colliding Numerix is uniquely positioned to evolve, lead and innovate.

It was clear that the market required a more integrated and holistic approach for managing risk. Numerix saw an opportunity to not only innovate but define the pricing and risk business going forward

“Our pedigree has been in maintaining a team with core expertise in Applied Mathematics, Physics, as well as Financial Engineering. Initially, as the company began defining and shaping the pricing marketplace, our team worked toward delivering all of the different asset classes. As we pivoted toward delivering risk solutions, our team built out risk capabilities which did not exist in the marketplace until then,” elaborates O’ Hanlon.

Key Differentiator

As an analytics platform Numerix provides pricing for OTC structured products and derivatives – across all assets: fixed income, equity, FX, credit, commodities, inflation, longevity, volatility and hybrids. We are consumed inside of Excel by quants, or via

our Software Development Kit inside of trading system platforms and products where we are then used inside of the clients’ workflow.

At the foundation of Numerix architecture is the industry’s largest and most sophisticated library of cross-asset models and methods that have been developed and integrated by Numerix’s quantitative research team.

Leveraging a comprehensive mathematical library and transparent pricing framework as part of a unified platform clients are able to model any type of OTC derivatives instrument and achieve consistent valuations across all positions and asset classes.

“The flexibility of CrossAsset is a key differentiator for Numerix. It not only allows us to adapt to future regulatory and market infrastructure changes, but seamlessly displace inflexible legacy systems that aren’t capable of producing robust, high-performance calculations,” said O’Hanlon.

The Numerix Partner Ecosystem

Many of the top trading and risk platforms used by today's financial institutions and corporate treasuries have embedded the Numerix model library and pricing architecture inside their systems. Resulting in over 90 partnerships with leading technology providers from around the world, Numerix has helped to solve some of the industry’s most complex derivatives challenges. From expanding model coverage to capture local market needs or being imbedded as an enterprise risk engine for counterparty credit risk management, the Numerix CrossAsset platform has helped to form the industry's most robust partner ecosystem for derivatives and structured products.

Looking to the Future

With 700 customers globally, Numerix prides itself on listening to, and closely working with its customers—seeing each software implementation as an opportunity to develop a long-term technology partner.

The global risk mandate for Numerix going forward is clear; continue as the leading independent provider of award winning CrossAsset analytics for the structuring, valuation and risk analysis of derivatives and structured products, while at the same time overseeing the further rapid global expansion of Numerix risk management products and services into business segments such as Banking, Insurance and hedge fund administration.

“Being a highly competitive person, I approach the entire business cycle as if it’s the championship game and in doing so, I have to understand the competition and determine ways to outdo them with the help of my management team and global staff of employees,” he adds.

With the goal of delivering a complete Enterprise Risk Management solution to the marketplace, Numerix seeks to remain a very strong pricing and risk company. “With very sophisticated knowledge of quantitative finance as well as technology, like cloud and multi-threading, Numerix is working to ensure it has all the right ingredients in place to become a robust ERM company,” says O’ Hanlon. “Numerix also looks forward to acquiring companies to enable growth in the ERM space. Numerix’s ability to adapt to the financial crisis has set them apart from their competitors. “We have proved that we can tackle the pricing and risk business, shape it, own it, and perhaps define it,” he conclude.

- Jem Elizabeth Mathew
    June 17, 2015