The model is integrated into the standard NumeriX solution framework, allowing for easy deployment across a customerâs entire organization, including front office trading, operations and risk management. It is available for use in NumeriX 6 for Microsoft Excel, NumeriX Portfolio, software development kits and plug-ins for popular third-party trading platforms and leading risk management systems.
âAs the increased volatility of the credit crunch continues to wreak havoc on the market, the importance of sophisticated analytics that help traders make sense of complex, credit-backed products is becoming clearer each day. The ability to deploy accurate and fast software pricing solutions is an incredibly powerful tool â one that increases transparency into the valuation of risky investments,â said Steven R. OâHanlon, president and COO of NumeriX. âNumeriX is firmly established as the clear-cut leader in pricing and risk analytics, and this model is another validation of the hard work our 40+ Ph.D.s put into developing solutions that encapsulate more industry knowledge and best practices than any other solution on the market.â
The new model, developed by Andrei Lopatin, a quantitative analyst at NumeriX, is the first two-dimensional, intensity-based Markovian model of the stochastic loss. It can be easily and quickly calibrated to the market of synthetic single tranche static CDOs, which contains a transparent and liquid source of quotes, which is necessary as a foundation for pricing complex instruments.
âComplex CDOs are among the most difficult products for financial professionals to accurately price â a fact made clear by the recent credit crunch and sub-prime crisis,â said Lopatin. âThe dynamic credit modeling incorporates the market risk related to the volatile spread movements that typically occur even in the absence of defaults; this feature is absolutely necessary to model sophisticated credit products.â