Principles of Quantitative Development

4.7 BOTTOM-LINE VIEW

Of all the various trade perspectives, the one that all of us should appreciate is that of the senior management, narrowly and steadily focusing on the bottom line. This is the view that is presented to the shareholders of the financial institution in annual reports and other public announcements. Since a financial institution such as a bank is primarily a profit-generating organization, this bottom-line view is appropriate. Furthermore, it helps the senior management prioritize actions in terms of the profit they bring to the stakeholders – including employees, shareholders and customers. Such prioritization and the consequent resource allocation have a direct impact on all of us.

This view, however, is at a level so high that pricing models and trades are invisible, unless, of course, rogue traders lose a lot of money on a particular product or by using a particular model – or, somewhat less likely, they make huge profits using the same tricks. However, this lack of visibility does not mean that the trading platform designers can ignore this view. We have to design in the capability of generating appropriate reports catering to this view as well.