Numerix Enables Clients to Tap Into Cloud Capacity for Complex Pricing

Derivatives pricing, valuation and risk management software vendor Numerix is enabling clients of its Numerix Portfolio valuation tool for pricing and hedging to access Microsoft’s Windows Azure cloud computing environment, to provide extra capacity for running compute-intensive risk and pricing models when their internal IT resources are already in use.

Portfolio is a client-server platform, with a set of APIs for capturing market data, and a user interface for front- and middle-office trading and risk management staff to run pricing queries, which runs on a grid computing back-end installed on clients’ servers, officials say. However, as more complex securities, the need to enter and exit positions faster, and regulatory demands for increased risk valuation—often to tight timeframes—result in more intensive compute requirements, firms find themselves exhausting their internal compute capacity. But rather than requiring them to invest in and maintain high-performance hardware, the agreement with Microsoft allows users to dip into virtual hardware resources on the Azure cloud as needed—known as “burst-to-cloud”—on a “pay-as-you-go” basis.

“Calculating CVA (credit value adjustment) takes much more power than calculating VAR (value at risk)…. Being able to calculate exposures requires having the capacity to price your entire portfolio, some of which might be illiquid securities,” says Denny Yu, risk product manager at Numerix. “The sheer amount of calculations required means that firms need more hardware… and if a client needs more processing power, they can buy more hardware, or they can lease virtual hardware in Microsoft’s cloud.”

Officials say that leveraging Microsoft’s cloud not only enables firms to tap into on-demand resources as needed, but also offers better economics than buying, testing, installing and maintaining dedicated hardware on-site, and enables them to meet regulatory timeframes by being able to run calculations faster than on existing equipment. “Compare the cost of new hardware to the cost of using Azure, which is the cost of re-routing—which can be done in an hour—and the cost of processing itself, which is a variable cost based on how much processing power is being used,” Yu says.

Budget Drivers
Numerix is aiming the service at clients with large and complex portfolios that involve a large number of calculations and take a long time to price. “I think a lot of IT teams are looking at their budgets and reviewing whether to do things in-house or use the cloud,” he says. “We’ve seen adoption from insurance companies who trade a lot of structured products, smaller banks or emerging market banks that have maxed out their IT budgets or are looking for alternatives, or buy-side firms with fewer IT staff and are more open to alternatives than big banks that are slower to adopt new technologies…. It’s a way for them to get into newer technologies at a lower cost.”