Principles of Quantitative Development

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Trade Life Cycle

Trades are dynamic entities. During the course of their life, they evolve and transform. Their evolution can be thought of as the flow of the trade object (in software parlance) in and out of the various business units that work on them. These business units may go by differing names depending on the financial institution we work in, but the trade workflow shows remarkable similarity across the financial industry.

Thanks to the increasing sophistication of our customers and the complex, interconnected nature of today's markets, the modern financial marketplace demands customized structures and solutions. Such solutions call for a high level of quantitative input, both in innovative models as well as the imperative of robust platforms to launch them in a timely fashion to capture transient market opportunities.

Most modern banks build such platforms in-house. This trend towards self-reliance is easy to understand, for the generic trading platforms that vendors provide are mainly set up to handle the established vanilla products well. They also do a good job in taking care of the established processes such as compliance, reporting, settlements, audit trails, etc. However, they are inefficient or downright incapable when it comes to pricing a hitherto unknown structure, and we face a dilemma. If we ask the vendors to develop and deploy a new pricing model for the innovative structure, they typically take a long time to respond. Furthermore, they either hold the ...