Our team of financial engineers can provide comprehensive testing and advisory services for model validation and assist with regulatory compliance issues. Armed with an array of standardized model tests and access to the suite of Numerix market-standard models, Numerix financial engineers enable our clients to put their business risk profile into sharper focus—enabling better and more timely decisions.
Numerix financial engineers leverage the power of Numerix CrossAsset, with access to over 100 market standard models and methodologies for all major asset classes— including fixed income, inflation, credit, equity, foreign exchange and commodities. Our cross-asset expertise allows us to provide the industry’s only commercially available hybrid model framework for pricing multi-asset basket trades.
Our services incorporate the flexibility of the Numerix architecture—which enable users to swap models, calibration methods, calibration instruments, pricing methods and interpolation methods. Once a deal type has been structured for one model, it is then priceable in all models, with all methods. Thus, a model may be validated by comparing it to a large collection of Numerix models, to determine performance against a firm’s proprietary models.
The Numerix Risk Scenario Framework functionality allows our team to customize as many market scenario shocks as desired, which can then be applied to any market scenario from history. Therefore, we may stress the model with either a standardized (e.g. a ladder report) or randomized set of shocks applied to various scenarios taken from historical data.
Our quantitative services clients benefit from the fact that Numerix separates the model from the payoff and the method. That means a Numerix model may be further explored by using the same model to remove features from the instrument—some or all of the call or put dates, a barrier, or a digital feature such as a range accrual. Our team of experts understand that these features are often subject to errors of numerical implementation, and these types of errors may be rapidly tracked down by the decomposition that the Numerix architecture allows.
Whether your front office and risk department are utilizing Numerix analytics, or you are utilizing proprietary models, Numerix financial engineers employ the use of standardized tests to confirm model accuracy and performance, confirming both mathematical and financial correctness of the models.
A direct Comparison test for each model, method, with a single payoff feature (e.g. barrier, early exercise, range accrual), which aids Decomposition Testing of more complex deals
Limiting Cases of Identities for Payoff (e.g. Knock-in/Knock-out) and for Model (e.g. Heston v. Black Sholes)
Smoothness tests for Greeks
Calibration Round Trip Tests
Convergence and Convergence Rate Tests
Tests for the performance of the model’s hedges can be run, either on Numerix models or on proprietary models.
Calibration Stability Tests
Calibration Error Tests
P&L Attribution Tests
Variance of Hedged Portfolio Test
Cost of Hedging Test
Our team of financial engineers are able to provide auditable XML files to our clients. In fact, any validation test can be serialized and exported into a self-contained Numerix XML file that captures all model inputs, including terms and conditions, market data, model choice and calibration assumptions, calendars and more.
Once converted to XML, the model can be ported throughout the institution for use within any operations. Additionally models can be “rehydrated” at any future date allowing users to audit and review the model all without the need to reconstruct historical pricing environments. The Numerix XML can also be ported to any regulatory or audit agency if required.