Derivatives Pricing and Risk Analytics 2013: Industrializing Derivatives Markets

by Cubillas Ding, February 18, 2013
Vendor Reviews
Global, Asia-Pacific, EMEA, North America

Abstract

As firms navigate the maze of aggressive regulations, capital concerns, and changing derivative markets, getting pricing and risk infrastructures in order will be key to sustainable “right risk” front office risk taking.

In the report Derivatives Pricing and Risk Analytics 2013: Industrializing Derivatives Markets, Celent examines the state of the market for pricing and risk solutions and ranks the innovative vendors that are helping firms build out and improve their analytical framework for derivatives operations.

Changes in swaps and OTC market structures, and shortages in quality capital/collateral, trading desks are facing augmented complexities and trade-offs in implementing derivative strategies. Both buy side and sell side firms have to navigate a selection of routes to market, especially in relation to their impact on trading profitability and costs. Considerations around execution certainty, liquidity, spreads, margining requirements, portfolio netting, execution/clearing fees, and overall regulatory capital implications of the routes employed are converging on the shoulders of the front office.

Looking forward, the industry's trajectory towards the dynamic pricing of counterparty credit risk, “market standard” OIS/CSA discounting practices, and the necessity to straddle and manage tensions between cleared/noncleared markets will catalyze efforts to embrace scalable, transparent, and open infrastructures which are able to handle "in time" price generation/delivery, electronic trading, and “near instant” reporting for pre-and post-trade activities.

“The derivative markets are undergoing their own ‘industrial revolution,’ and the pricing and risk technologies profiled in this report underpin many aspects of this revolution," says Cubillas Ding, Celent Research Director and author of the report. "Forward thinking firms that can anticipate and triangulate elements of risk-adjusted pricing, profitability, and capital consumption at the frontline in a cohesive and timely manner will be more adept at achieving the right results.”

This report delivers an up-to-date and detailed analysis into derivatives pricing and risk practices associated with OTC and structured product markets, as well as their implications for firms. The report examines and ranks eight vendors and their solutions in this space featuring Celent’s ABCD Vendor View, which presents a comparative view of the vendor marketplace that visually represents four elements: Advanced Technology, Breadth of functionality, Customer base, and Depth of client services. The vendors profiled in this report include: Andrew Kalotay, FinCAD, Numerix, Pricing Partners, Quantifi, SciComp, SunGard FastVal, and UnRisk / MathConsult.

This 36-page report contains 7 figures and 13 tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Market Structure Evolution and the New Face of Derivatives Management

2

Overview of Pricing and Risk Analytics Vendors

7

 

Vendor Overview

8

 

Comparison of Analytics Delivery and Implementation Approaches

9

 

Technology/Platform Overview

10

 

Solution Licensing/Overview

12

Celent ABCD Vendor Rankings—XCelent Awards

14

 

Introduction to Celent’s ABCD Vendor View

14

 

At a Glance

15

 

XCelent Advanced Technology and XCelent Functionality

16

 

XCelent Customer Base and XCelent Service

16

 

Advanced Technology and Features

17

 

Breadth of Functionality

17

 

Client Base

18

 

Depth of Client Services

18

Client Vendor Assessment and Analysis

19

 

Andrew Kalotay

19

 

FINCAD

20

 

NUMERIX

21

 

Pricing Partners

23

 

Quantifi

24

 

SunGard FastVal

25

 

SciComp

26

 

UnRisk / MathConsult

27

Conclusions and Recommendations

28

 

For Financial Firms

28

 

For Vendors

28

Appendix

30

 

Implementation Routes to Market

30

Leveraging Celent’s Expertise

31

 

Support for Financial Institutions

31

 

Support for Vendors

31

Related Celent Research

32

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