WHERE DERIVATIVES EXHIBIT MODEL BEHAVIOR
|
 |
At Reval. We develop market standard pricing models. Built by financial engineers who understand derivatives and what it takes to value them accurately.
|
|
Ernie, product development chief @ Reval
Expert in marrying financial engineering and best-of-breed software. |
Ernie has more than 20 years of experience managing and developing technology solutions for trading and risk management of capital markets products. He joined Reval after 10 years at Bankers Trust Company where he led a team responsible for foreign exchange and derivative trading and risk management systems. Prior to that, he served as a programmer/analyst at Bloomberg L.P. where he played a key role in the deployment of fixed income pricing and offering tools. He holds a Bachelor of Science degree in computer science from Princeton University.
Client: How do ‘market standard’ pricing models actually benefit me?
Ernie: “Market standard models reflect the general market practice. Someone could develop a proprietary way of pricing a derivative that may have some merit, but if the market isn’t pricing it that way, it will not yield a true mark-to-market.“
Why is that better?
“You want pricing to accurately reflect fair market values. These are prices that you could actually get in the market, not theoretical ones. So using our pricing models leads to valuations that are market based. That’s why we call them market standard pricing models.”
Give me an example of how you do it.
“We recently developed a suite of models for structured IR products. Callable CMS caps and floors. Reverse floaters. PRDCs. These are exotics. And they’re complicated. So we start by defining what market data is necessary. Our operations team goes out and finds reliable data sources that can be used.”
So what’s the outcome?
“Financial engineers are responsible for understanding derivative products. They need to know what market data is needed to price them accurately. They need to know the applicable models used for the valuation and the mathematical theory to implement them. And then be able to work with our software engineers to integrate the models with the rest of our service. The end results are powerful valuation tools that can accurately price financial instruments based on the market, not novel theory.”
Ernie:
Helping clients to value derivatives accurately by developing market standard models.
