Real World risk metrics, such as Potential Future Exposure (PFE) or Expected Exposure profiles, are heavily used in counterparty credit risk functions within banks and feature in regulatory capital requirements. The market standard for these calculations has been the computationally intensive nested Monte Carlo approach, in which the Brute Force simulations can require billions of simulation paths and substantial computing power.
In order to handle real world PFE and other counterparty exposure calculations in a single framework, which requires risk neutral pricing on top of real world scenarios, an innovative decoupling approach relaxes the requirement that the same model be used to both generate scenarios and simulate the future values. This method, based on Las Vegas Monte Carlo simulations with new resampling techniques, provides a much more efficient alternative to Real World nested Monte Carlo exposure calculations, decreasing computation time by several orders of magnitude.
On March 2, 2016 featured speaker Dr. Ping Sun, Executive Director of Financial Engineering at Numerix, built on his previous presentation introducing Real World Algorithmic Exposure and took a deep dive into the innovative new resampling approach, outlining the theory behind it along with showcasing examples of resampling in action and a comparison of the Algorithmic Exposure and Brute Force approaches.
Ping Sun, PhD, Executive Director of Financial Engineering, Numerix
Dr. Ping Sun is Executive Director of Financial Engineering and Head of Equity, Foreign Exchange and Commodity Solutions at Numerix. He works with clients to help solve their derivative pricing and risk management challenges and drives the development of the Numerix Real World modeling framework as a project manager. Dr. Sun’s extensive experience includes publications in academic oriented journals, academic lecturing, and also developing the Numerix cross currency ESG. During his career at Numerix, he also served as a Consultant and FX/EQ Desk Quant for the Lehman Brothers estate. Dr. Sun was a postdoctoral fellow at Rutgers University, and he earned a doctorate degree in Physics from City College of New York.
Moderator: Greg Murray, Vice President, Product Marketing
Greg Murray oversees product marketing initiatives at Numerix, focusing on go-to-market strategies and marketing of Numerix’s derivative pricing and risk analytics. Prior to his current role, Mr. Murray worked in derivative analytics sales roles at Numerix and at other software firms. He also held derivative trading positions for seven years as an option market-maker and proprietary trader across a variety of asset classes.