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Numerix Adjusts Reference Data Structure to Add Multiple Pricing Curves to Portfolio

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Numerix has added out-of-the-box multi-curve modelling to its Portfolio front and middle-office application for pricing, managing risk and hedging structured products, giving users the ability to generate more precise valuations and risk measurements of collateralised structured products.

The additional functionality is available in the company’s pricing library and the Portfolio product immediately and follows the introduction of multi-curve pricing and valuations for the Numerix CrossAsset analytics platform in December 2011.

According to Denny Yu, product manager of risk at Numerix, “As the demand for overnight index swap (OIS) discounting has grown and the complexity of curve construction has increased, the core principles of modelling and internal valuation practices have been challenged. By refining curve instruments and greatly improving reference data infrastructure within Portfolio, clients not only have the ability to derive OIS curves and use Portfolio for the pricing of OTC derivatives, but also the ability to use the software to support flexible deal structuring, comprehensive trade capture and management.”

Describing the changes to Portfolio’s reference data, Yu adds: “As part of curve and stripping instrument enhancements, reference data infrastructure has been improved specifically as it relates to conventions and floating index rates. A new convention category was created to make a distinction between conventions that are used for instrument stripping in curves and models, and conventions that are used for trades. Leg parameters were updated for various swap conventions, support was added for tenor to Floating Rate Index and a new OIS/Libor basis swap convention was also added.”

The company spent last year hosting seminars to educate and inform market participants on how OIS discounting affects business and expects both existing and new buy and sell-side derivatives market participants to use Portfolio’s multi-curve functionality. Yu comments: “Multi-curve pricing continues to generate valuation disputes among counterparties and our hope is that this new functionality will reduce this phenomenon.”

Looking forward, Yu says Numerix will continue to focus on delivering real-time counterparty credit risk and market risk analytics for pre-trade and post-trade analysis through 2013, and concludes: “As regulation continues to be rolled out from Basel, European Market Infrastructure Regulation and Dodd-Frank, we will place more emphasis on big data management, real-time analytics and innovative measures of risk and return.”

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