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Quantifi Releases Version 9.1 with New Models for Pricing CDOs

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Quantifi, a provider of analytics and risk management solutions to the global credit markets, has released version 9.1 of its software, which it says is aimed at allowing customers to more closely track the market. The updated version includes new models for pricing collateralised debt obligations (CDOs) and a flexible interface that enables users to perform complex ad hoc analysis across a broad range of market scenarios, says the vendor.

Rohan Douglas, founder and CEO of Quantifi, explains: “This new release includes several enhancements to our pricing and risk management infrastructure. Some of these enhancements were in direct response to the pricing issues our clients were facing.”

He explains that a key aspect of version 9.1 is the Quantifi Correlated Recovery (QCR) Model, which incorporates correlated stochastic recovery within the market standard Gaussian Copula framework. “The Quantifi Correlated Recovery model was recently introduced because the standard one factor Gaussian Copula models could not cope with widening spreads on super senior tranches. Also this release has multi-core/multi-CPU optimised distributed processing capabilities, which can significantly speed up computation times and can be invaluable in fast moving markets,” says Douglas.

These capabilities are therefore aimed at speeding up computation times on complex trade pricing and scenario risk analysis, even on stand-alone desktops, according to Douglas. The new model also enables users to price and calibrate reliably even in times of extreme market volatility, he claims.

The new version includes support for syndicated loans that provides pricing and risk management with support for contractual features such as pricing grids (performance coupons), variable draws, and prepayments.

According to Quantifi, version 9.1 includes a next generation ‘top down’ model for pricing CDOs that directly incorporates information from the tranche markets for pricing and risk analysis. “The reason we introduced the Quantifi Correlated Recovery model and the next generation ‘top down’ model is to overcome some of the shortcomings of the existing models,” says Douglas.

The vendor has added a new ‘scenario editor’ to the latest version, which provides a graphical interface aimed at simplifying the process of performing complex ‘what if’ scenario analysis. “With unprecedented volatility in the markets, scenario risk analysis can be a very important tool in analysing risk,” he continues. “The ‘scenario editor’ is a simple and intuitive user interface to enable users to easy define ad-hoc scenarios that can be used to manage intraday risks or to run elaborate end of day risk analysis.”

This includes enhanced sensitivity analysis such as direct calculation of CDO sensitivities to correlation calibration parameters, for example tranche and index levels. “Quantifi is first to market and remains the only vendor that has implemented a CDO pricing model that incorporates stochastic correlated recovery. These new CDO models provide our clients with tools and risk analysis that matches the leading banks and put our clients on a level playing field with the largest and most sophisticated players in the market,” claims Douglas.

He explains that, as with all their major releases, the new version took a few months to put together. In the implementation process, Quantifi faced several challenges both from the analytics perspective and from a technology and infrastructure design perspective, he says. “With some of the standard models for pricing synthetic CDOs producing negative deltas and in many cases failing to calibrate, we had to develop a solution to handle such issues. The multi-core/multi-CPU optimised distributed processing capabilities – which are available in this release – is next generation technology and allows users to take full advantage of the processing power of modern desktops,” he elaborates.

As for the future, the vendor will continue to adapt its solution to client needs, says Douglas: “We work very closely with our clients and try to accommodate their ongoing needs. Although our clients do not directly get involved in the testing phase, we gather their feedback with an eye towards improving our product.”

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