Jun 6, 2017

2017 Global Derivatives Recap with Udi Sela


In this video blog, James Jockle, Chief Marketing Officer at Numerix, sits down with Udi Sela, FX expert and Vice President of the Business Development Group at Numerix to get his insight on the 2017 Global Derivatives Conference in Barcelona. Mr. Sela discusses the hottest topics covered in the industry and his predictions on how these topics will transform the financial space and FX market.

Mr. Sela was also featured in a compelling interview with Global Derivatives TV on his perception of the conference.


Jim Jockle (Host): Hi, welcome to Numerix video blog, I'm your host Jim Jockle. Joining me today is FX expert and vice president in the business development group, Udi Sela, Udi how are you sir?

Udi Sela (Guest): Very well, thank you Jim.

Jockle: Udi, just back from Global Derivatives in Barcelona last week, just wanted to get some of your thoughts and arguably for those not familiar with the Global Derivatives conference, it’s kind of like the Paris air show, but for Quants. So, Udi, give us some of your top line thoughts of some of the big trends that you’re seeing this year Global Derivatives.

Sela: Yes, Jim so the main thing is about the increasing importance of technology and its impact on the quantitative world. We’ve seen and heard speeches and presentations about big data and artificial intelligence and machine learning and then of course the big question that came up was in terms of numerical methods, do we need to invest in this now that the available technology today enables you to perform brute force calculations in almost any quantitative problem so why do I need to look for shortcuts.

Jockle: So, Udi, you know you mention AI and it’s interesting that AI is now at what has been such a traditional kind of show looking at new model adjustments and new methods, but you know arguably anyone with an if-then statement has an AI solution nowadays. So, in terms of practical uses for AI and machine learning, what do you think we’re actually going to start seeing on the trading desk in the next few years?

Sela: So, I can provide with you two direct examples I’ve heard that are already taking place. So, one is using artificial intelligence for model calibration in real-time, or almost real-time and the second thing you can argue is sad, but it’s the reality, is the fact that you can use super computers today, feed them with financial regulation, and the machine will interpret the measures that you need to take. I heard that one of the banks, without naming, let go of 200 lawyers because the work can be replaced by machines at ultimately a lower cost.

Jockle: Well, automation is rife, and try and find a retailer to buy a nice suit you must go online. I think it’s going to be the same continuing the trend in quantitative finance and capital markets. But you know, one question I have is, we always talk about learning from the past and utilizing historical evidence to program and dive into this machine learning universe and there’s been so many benchmarks that have happened, whether it’s the New York City default in the Muni market in the 1970s or elements of the latest crash, how is this historical data set? Now that we have so much more data, tons and tons of data that’s multiplying so rapidly. How does this change or help to evolve elements of the capital markets because it seems like fundamental thinking could be on the way out?

Sela: So, two things I would say Jim, in that respect. First, one thing that you have mentioned, is having the big data, but the second thing is how can I derive from it more intelligent decision making and in fact how can I also manage my book better. So now I can look at all those massive data points, but now, that I can also look for correlations and relationships between the data points; the things that people never looked at before. So, beforehand I was looking at the relationship between equity market and specific incidences in currency markets. Now I can look at many more; I can tie them to macroeconomic factors and I can derive very interesting relationships based on the past, that may help me better manage my book and position my book for the future. People of course mention the black swan, right? So, the black swan events tend to happen when the market trades with high levels in a world between greed and fear. So now the fear level is low and the greed level is high and you can see that at the current level of the VIX which is hovering around 10. So, I would say this is a good timing to think about things because a black swan event can happen and is potentially around the corner; just different things that have happened last year.

Jockle: You bring up the VIX, and yes we’re almost at a 10-year low right now sitting around 10, I mean back crisis there was a spike up to 60. At this point in time, would you expect greater volatility within the fear of the index?

Sela: Yes, I think that if you look at the elasticity of the VIX, it seems much more reasonable to see an uptick move than a down tick move. To move from 10 to 8, requires much more than moving from 10 to 14. Yes, absolutely.

Jockle: And in that volatility, how is that going to impact spending and investment? You know obviously at any point in time markets are down, trading profits are still kind of thin across the board, you know, how much is the VIX going to be an indicator of technology investment and innovation?

Sela: So, I mean, the VIX is just one symptom, right? It’s a symptom of the fact that the real fear of the market has no limits, right? So, one thing is that, you’ve touched on a couple of things in your question. One thing is, trading revenues are flat. How can I generate more trading revenues when, as a bank, at least let’s say we’re talking about the sell-side, I need to also comply with more and more regulation. So, one thing I think is automation, so moving a little bit away from humans; market making at least and more into Algo trading. I think another trend that would impact is the move to the cloud; its undeniable because institutions now are moving to the cloud, including JP Morgan have announced that, even to a public cloud. We see our clients talking about that, and that would also imply managed services for firms like ourselves, a significant opportunity.

Jockle: Well, Udi I want to thank you so much. I think clearly it’s a new dawn in terms of quantitative finance in the way the markets are going to be working in the next couple of years and I think your statement on the cloud, it’s always kind of said it’s not if, it’s when, and I think the when is now. So, Udi I want to thank you so much for your perspective on Global Derivatives and of course we hope to see you soon.

Blog Post - Sep 22, 2011

“Real-time” Trading and Risk Demands Drive Cloud Innovation for Complex Derivatives

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