The trading of derivatives is steadily rising among asset managers (traditional investment houses, pension funds, sovereign wealth funds, institutional investors, family offices and private banks). The reasons for this phenomenon vary, but the core motives are the search for higher returns, hedging against risk, and the desire to diversify across a wider range of assets.

But investing in derivatives comes with complex compliance and operational challenges. The derivatives marketplace changed significantly as a result of the 2008 financial crisis, particularly in the regulatory area as new requirements—most notably due to the Dodd-Frank Act in the U.S. and EMIR in Europe—changed how OTC derivatives are traded, cleared and reported.

Additionally, growth in derivatives usage means growing pains, particularly around operations. We see that many asset managers are now struggling to cope with derivatives trading, and they lay the culpability on having inappropriate processes or systems. Dealing with this while also trying to cope with changing market dynamics makes it increasingly difficult for asset managers to effectively manage their derivative portfolios.

Numerix offers superior solutions. We provide the analytical tools and technology needed to help asset managers successfully navigate the myriad of complexities involved with derivatives trading.

Numerix Asset Management Solutions Help Asset Managers:

Ability to see exposure to any risk factor in real-time.

 

Integrate market-standard derivative pricing and risk analytics into proprietary applications to dramatically reduce the time and expense relative to building the analytics from scratch

Pricing of any derivative in real-time, from vanillas to exotics across all asset classes, using market-standard practices such as OIS discounting and collateral discounting

 

Perform initial margin or collateral calculations during pre-trade counterparty discussions or post-trade validations to optimize counterparty choices and reduce disputes

Perform investment strategy analysis and back-testing, as well as derivative overlay research and hedging analysis

 

Calculate risk sensitivities/Greeks and manage market risk via scenarios/stress tests, VaR and expected shortfall analysis

Produce risk sensitivities/Greeks, scenario analyses, VaR and Expected Shortfall for market risk management

 

Produce post-trade valuations for fund NAVs and client reporting, and/or obtain independent valuations to validate NAVs

Reverse engineer counterparty quotes to validate the prices and understand the valuation adjustments (such as CVA and FVA) embedded in quotes

 

 Manage counterparty credit risk and limit counterparty concentrations

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