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Qimou Su, Director, Quantitative & Risk Analytics, gave a presentation at Global Derivatives USA 2012 in Chicago. The talk, titled " Volatility Smiles in Commodity Futures" featured:

  • Multi-factor commodity model with explicit modeling of volatility smiles
  • Volatility interpolation and calibration of implied marginal distributions
  • Separation of volatility smiles and correlation calibrations
  • Simulation algorithm based on copula techniques to value path-dependent options
  • Download the presentation Volatility Smiles in Commodity Futures

Stochastic Local Volatility Calibrator

The SLV Calibrator is based on the original Ren & Madan paper and follows the implementation as described in the Bloomberg paper "Stochastic Local Volatility" by Tataru & Fisher. The SLV Calibrator takes any calibrated LV surface that matches vanillas. Then, using a non-linear Fokker-Planck equation, one adds a SV component and for any given set of SV parameters computes a new "leveraged local volatility surface" that still matches the vanillas, while accommodating SV. The SLV Calibrator then applies to this PDE solution a Levenberg-Marquardt optimizer and finds the (time bucketed) SV parameters that yield a maximally flat leveraged local volatility surface. At this point you have the pure LV model (the original LV surface) and the pure SV model (the SV parameters that yield a nearly flat leveraged LV surface). Both models fit the vanillas. The SLV Calibrator then solves for a mixing fraction the mixes the two models together either by a) calibrating to selected exotics, or b) using historical data.

Test drive the Stochastic Local Volatility Calibrator

Commodity Models

SciComp is pleased to announce a new research paper "Putting Smiles Back to The Futures" that describes a practical method to extend the classical log-normal Gabillon model to incorporate volatility smiles; and a forward market model for pricing options on Forward Freight Agreements (FFA) with a term structure of FFA volatility.

Gabillon Model with Volatility Smiles

The Gabillon model can effectively capture the difference in future curve volatility between the front- and back-ends of the curve. However, the Gabillon model ignores the effects of volatility smiles that are commonly observed in the options markets. Given their dependency on multiple points of the futures curve, the value of many commodity derivatives can be sensitive to the volatility smiles of futures prices. To effectively price and risk manage these products, we need to incorporate smile information into the correlation and term structure modeling of the futures curve.

Download the research paper now: "Putting Smiles Back to the Futures."

The Forward Freight Agreement (FFA) option model

The FFA option model is based on the forward freight rate and uses a three-parameter formulation to capture the shape of the instantaneous volatility. The model supports FFA options with multiple settlement periods and automatically calculates the relevant dates of the monthly option strips. The model also calculates various Greeks (e.g., Delta, Gamma, Theta and Vega).

Graphics Processing Units in Computational Finance: Approaching the Mainstream (Strategic Focus), Ovum

"Graphics processing units (GPUs) represent an increasingly performant and cost-effective means of executing complex calculations, and many capital markets participants are running pilots with them for pricing instruments or analyzing their risk profile...

Software vendors and service providers ease GPU adoption

...SciComp's flagship product, SciFinance, delivers code synthesis technology (i.e. software that generates software) for pricing complex derivatives. In essence, this approach masks the complexity of parallel programming from the end user, while leaving them free to define the characteristics of the pricing model that they want to run on GPUs. Users can experiment with different solvers, finite difference schemes, or interpolation methods by changing a few lines in the specification. Specifications can be modified to capture particular instrument features and developer's preferences for mathematical constructs and routines. SciFinance then automatically generates fully documented C/C++/CUDA pricing model source code (currently SciFinance automatically generates CUDA-enabled source code for any Monte Carlo pricing model, with support for PDE pricing models scheduled for release later this year)."

Reval Reduces Time to Price OTC Derivatives, Securities Industry News

"We were looking for a cost-effective and easy-to-deploy solution to improve the pricing of complex derivative instruments,'' said, Ernest Bonsell, senior vice president of product engineering at Reval.

Reval signs for SciComp,

"In order to quickly develop new structured products and vastly speed up Monte Carlo-based derivatives for its Software-as-a-Service (SaaS) customers, Reval, the global leader in derivative risk management and hedge accounting solutions, chose SciFinance from SciComp Inc."

Cozy up with CUDA, Wilmott Magazine

‘CUDA’ is the magic word to direct the newly enhanced SciFinance to CUDA-enable your Monte Carlo pricing models

"...Obviously, speed of model development is important, but so is the execution time of the pricing model. SciComp has partnered with NVIDIA, and we are now taking advantage of their graphics processing unit (GPU) technology. NVIDIA developed a programming language called CUDA that allows you to develop programs that efficiently run on the GPU card. Code that takes advantage of the GPU’s parallelism exhibits tremendous increases in execution speed compared to serial code.

SciFinance can now automatically create CUDA-enabled pricing and risk models, so a customer need only add the keyword ‘CUDA’ to an existing serial model specification. Depending on the type of pricing model, it can run from 30 to 120 times faster than the comparable serial code. One of the best parts from a customer’s perspective is that they do not need to have any CUDA or parallel computing experience, SciFinance takes care of all of that."

Request a password to the SciComp Resource Center to read the entire article.

The Rubik's Cube of Risk, Risk Magazine

"...Other developers have noted the similarity between calculations underlying graphics processing and risk analysis, and are running their software on the latest graphics boards, which can have four chips each with 240 processors, giving a performance improvement compared with a conventional PC board of around 250 times. Pricing and risk model vendor SciComp, based in Austin, Texas, is among the first to exploit this, modifying its code to run on the processors of California-based graphics hardware specialist Nvidia. "Without this kind of approach, the task of integrated risk management is not doable," says Ponzo.

Solving the Rubik's cube of integrated risk management is going to take a combination of innovation and pragmatism within each mini cube element of risk, as well as across each dimension of the whole."

Wall Street Accelerates Options Analysis with GPU Technology, Wall Street and Technology

The thousands of lines of C or C++ code generated by SciFinance can help a quant produce a new pricing model in a matter of hours, says Randall. "The compiler and the language make the hardware accessible to general programming as opposed to graphics programming," says Randall, who contends that the NVIDIA hardware can enable the code to run 30 to 50 times faster than standard PCs. "Programmers don't have to understand the nuances of how to parallelize code. All of that is done for them automatically."

Tesla 10 & CUDA 2.0: Real-World Applications & Financials: SciComp's SciFinance Beyond3D

"..Traditionally, traders who imagined a deal talked to ‘quants’ (PhDs in mathematics or physics who are specialized in finance) and the mathematical equations they came up with for the pricing model then had to be transformed into a program through weeks of hand-coding. After this error-prone process, the program had to be run to estimate the price.

SciFinance’s approach is to automate program generation; instead of manual coding, the quants can ‘simply’ describe their equations in a specialized language. The process is much quicker and much more reliable. Therefore, the relative length of running the program increases and it becomes more of a bottleneck. The solution they came up with is, of course, FPGAs. Uhhh, wait, no, I meant CUDA obviously:

What may not be as obvious in that image is that the only thing you need to add to get GPGPU acceleration is literally ‘CUDA’; it’s a single keyword, not a fundamentally different way to formulate the math equations. This allows SciComp’s customers to save even more time while also improving accuracy (through a higher number of iterations), both of which result in obvious financial benefits.

The difference between merely being able to demonstrate the acceleration of a basic stock option pricing model and this is huge. The amount of work involved is likely ridiculously higher, and it’s a pretty good example of how much far along CUDA is in terms of software..."

SciComp Accelerates Derivatives Pricing with CUDA, InsideHPC

"...SciComp is one of the first companies to fully embrace the potential that GPUs have in the field of computational finance,” said Andy Keane, general manager of the GPU Computing business at NVIDIA. “The ability to not just deliver small and incremental increases in performance, but instead to deliver 100X and reduce weeks of hand coding to immediate, real-time results is incredibly powerful. We look forward to working closely with SciComp going forward to bring more defining improvements to the SciFinance generated pricing models and in turn their customers’ businesses."

State of the IT, Risk Magazine

"To speed up the models produced by its SciFinance automated coding application for rapidly developing Monte Carlo or partial differential equation-based derivatives pricing and risk models, the company introduced the automatic generation of OpenMP or Nvidia CUDA-enabled parallel code. "

You Have the Technology, Risk Magazine

"SciComp plans to introduce a more powerful and concise version of its Aspen specification language to shorten the code of complex partial differential equations and Monte Carlo pricing problems. "

Shorter model development time and faster execution with latest iteration, Wilmott Magazine

"With SciFinance 5.0, quantitative developers can significantly shorten model development time and create models with fast execution speeds. SciFinance 5.0 features automatic parallel Monte Carlo code generation and a more concise specification dialect, SciXpress, for PDE models."

General Monte Carlo Greeks in Practice, Wilmott Magazine

"...The simplest general approach for estimating the Greeks is based on finite differences, in which the Monte Carlo pricing function is called to revalue the derivative at perturbed parameters and a finite difference is applied to approximate the partial derivatives (price sensitivities). The advantage of such estimation lies in its independence of the underlying model and payoff structure, enabling a generic implementation with little additional programming..."

Request a password to the SciComp Resource Center to read the entire article.

New and Improved, Risk Magazine

"For its SciFinance automated pricing and risk model generator, the company introduced SciCalibrator, which allows users to specify calibration problems at a high level and then generate the corresponding source code in C or C++."

SciComp: Quantifying Choice, Wilmott Magazine

"We help our clients develop and implement innovative pricing and risk model strategies. Typical library-based approaches pose a high cost to innovation given that there are so many places in the code which require updating and modification. SciFinance users simply modify their specification to reflect any desired changes and a new pricing executable is created automatically."

Computer Software That Writes Itself, Newsweek International

"One automatic programming tool has already made it into the financial marketplace. SciComp, based in Austin, Texas, has developed a product that helps investment banks design programs to price financial derivatives. It takes complex mathematical models and translates them into something a computer can solve, allowing banks to flexibly change pricing models as they introduce new products and guidelines."

Second patent for SciComp, Wilmott Magazine

"SciComp Inc. has been issued U.S. patent number 6,772,136 for its SciFinance software synthesis technology for financial instrument modeling using Monte Carlo simulations. This patent is in addition to a patent awarded to SciComp for the same problem solving environment, but using systems of partial differential equations."

SciComp Inc., Risk Magazine

"...SciComp extended the instrument coverage of its SciFinance automated pricing model generator to include, among others, cash collateralised debt obligations (CCDOs), CDO-squareds and credit-linked range accrual notes. A new generic short rate and hazard rate calibration module calibrates both the short and hazard rates (correlated), using models such as one-factor, Gaussian and extended exponential Vasichek."

SciComp Dives into Large Pool, Wilmott Magazine

"The Large Pool Model for base correlations is a commonly used, fast and transparent pricing approach that lets both buy side and sell side clients quickly perform consistency checks on market prices."

BOCI Choose Scicomp, Wilmott Magazine

"Deciding factors for BOCI purchasing SciFinace included the ability to solve problems through a high-level declarative language rather than hand coding," said George Advani, a quantitative analyst for BOCI. We will use SciFinance to value and hedge equity derivative instruments including baskets and exotics."

SciComp Strategy, Risk Magazine

"...the company plans to release a new examples catalogue for its automated pricing model generator SciFinance, which will enable users to code and price very exotic derivatives. An upgraded version of SciIntegrator will provide extra functionality for developers using Microsoft's .Net and Java..."

SciComp releases SciCal calibrator for SV and SVJ, Numa.web

"SciComp Inc. has released SciCal software for calibrating stochastic volatility (SV) and stochastic volatility + jumps (SVJ) pricing models to market data. The modern search variant used in SciCal is very fast --SciCal can calibrate from a handful to hundreds of options to market data in under a minute. "

SciComp release SciCal calibration software for derivatives pricing models, Wilmott Magazine

"SciComp Inc. has released SciCal software for calibrating stochastic volatility (SV) and stochastic volatility + jumps (SVJ) pricing models to market data. The modern search variant used in SciCal is very fast --SciCal can calibrate from a handful to hundreds of options to market data in under a minute. "

Turbo-charged models, Risk Magazine

"...Fortis originally used a Monte Carlo application developed in-house, but has now adopted SciMC from Texas-based SciComp, which will automatically generate Monte Carlo code from simple specifications the user makes in a special language called Aspen."

Fast Monte Carlo programming, Risk Magazine

"Users own the code the product produces, which does not need run-time licenses. Using the company's ASPEN language, users can specify any number of stochastic differential equations that describe underlying processes, a payout discount and sensitivity functions."

Texas-based SciComp has developed SciMC,

"SciMC handles sophisticated mathematical and financial features including exotic path dependencies, jumps, high dimensionality, deterministic sequences, choice of variance reduction techniques, and American or Bermudan exercise."

ABN Amro equities unit in SciComp deal, Risk News

"SciFinance automatically generates custom codes - called C codes - based on brief specifications of derivatives structures. ABN Amro believes the system will reduce both the time and costs involved in developing a new model, as it can automate the process as well as formalising the concepts that analysts and traders use."

ABN AMRO has licensed SciFinance and SciXL,

"Andrew Greaves, managing director at ABN Amro, says: "We will use SciXL to run models in Excel without extra programming steps. Together, SciFinance and SciXL will reduce the time and cost involved with new model development."

Dutch bank buys SciComp software, Austin Business Journal

SciComp awarded patent, Austin American-Statesman

SciComp has been issued a patent, Wall Street & Technology Week

SciXL from SciComp takes the pain out of producing Microsoft Excel add-ins, Financial Engineering News

"SciXL is a breakthrough, since it builds the add-in for you, and creates and maintains all the code that links the add-in programs to Excel. In addition, add-ins written in C++ perform much faster and are more stable than those written in Visual Basic."

The Electronic Quant, Risk Magazine

"SciComp, based in Austin, Texas, has produced an artificial intelligence package that will turn an analyst's options pricing model into a computer program."

Code-Crunching for Option Pricing, Derivatives Strategy

"Anything you can write in terms of a partial differential equation, the software can price."

If the Skew Fits, Risk Magazine

"Smiles, smirks, skews, sneers...these rather whimsical terms inthe volatility vernacular describe an important reality: implied Black-Scholes volatilities are not constant...In this article, we describe a very simple model of the local volatility type that nevertheless provides a rich framework for capturing volatility smiles and skews."

SciComp Automates Algorithm Production at Merrill, Derivatives & Risk Technology

Merrill to Use SciFinance to Price Equity Derivatives Derivatives & Risk Technology