Company: Numerix LLC
Category: Private Equity
Published: 23 April 2015
At their core, institutional financial markets exist to transfer risk. Whether via corporate lending, equity ownership or the creation and sale of structuredcredit derivatives, financial firms work to shuffle around different forms of risks-from those looking to mitigate it to those looking to take more on.
That risk transfer process is managed primarily by financial models. At a high level, models in this context can be defined as a set of calculations and defined inputs used to generate a recommendation. In the case of structured derivatives, the model output is a valuation or risk metric. According to conversations with market participants during a recent study, other model types include but are not limited to pricing, trading, counter-party risk, and enterprise risk. These models have been migrating from the brains of bankers to graph paper to the cloud over the past century, and as the field has evolved, so too has its importance to the financial markets.
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