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  5. Derivatives Pricing and Risk Analytics 2013: Industrializing Derivatives Markets

Derivatives Pricing and Risk Analytics 2013: Industrializing Derivatives Markets

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17 February 2013
Cubillas Ding

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.

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