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FRONT ARENA

FRONT ARENA. From Theory to Practice - PDE & Finance, 2007 Håkan Norekrans, Product Manager. Agenda: SunGard FRONT ARENA – The Company Instrument Coverage and Valuation Models The Finite Difference Solver in FRONT ARENA Pricing Quoting Risk Management. FRONT ARENA – The Company.

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FRONT ARENA

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  1. FRONT ARENA

  2. From Theory to Practice - PDE & Finance, 2007Håkan Norekrans, Product Manager Agenda: • SunGard FRONT ARENA – The Company • Instrument Coverage and Valuation Models • The Finite Difference Solver in FRONT ARENA • Pricing • Quoting • Risk Management

  3. FRONT ARENA – The Company

  4. Founded 1987 • Asset Class: OM Stockholm equity options • Workflow: Risk management • Customers: Swedish banks and brokers • Employees:

  5. Asset Classes Workflows FRONT ARENA’s Business 2007 • Equities • Fixed Income, Repos & Convertibles • Interest Rate Derivatives • Credit Derivatives • FX, Money Markets, • FX Options • Sales & Distribution • Market Making & Proprietary Trading • Risk Management • Back Office • Market & Price Connectivity • Hedge Fund Operational Integration • Equities • Fixed Income, • Repos & Convertibles • Interest Rate Derivatives • Credit Derivatives • FX, Money Markets, • FX Options

  6. 150 Customers with 350 Installed Sites China Canada Holland Finland UK Japan Norway Sweden Germany Austria Switzerland Taiwan Thailand US Singapore Hong Kong South Africa Typical customers • Investment Banks • Private Banks • Hedge Funds .

  7. Global Coverage - Local Focus 378 Employees 198 Product operation 166 Global services 14 Shared services Stockholm London Frankfurt Zurich New York Tokyo LosAngeles HongKong Singapore Johannesburg

  8. FRONT ARENA - Vision Web Links : http://www.sungard.com/frontarena http://www.frontarena.com “With FRONT ARENA’s integrated solutions, we use the same system across our Fixed Income, Interest Rate Derivatives and Equities desks. The openness and flexibility of FRONT ARENA enables us to react in a timely fashion to business requirements” Hans-Ulrich Hasse, Senior Vice President Landesbank Rheinland-Pfalz

  9. Instrument Coverage and Valuation Models in FRONT ARENA

  10. Valuation Methods in FRONT ARENA • Analytical models • Default choice • Fast and accurate greeks • Often not available • Tree models (Binomial – Trinomial) • Traditional choice in finance • Relatively fast • Limited robustness and flexibility • Finite Difference • Increasing usage • Relatively fast and stable greeks • More complex implementation • Monte Carlo • Needed for complex pricing • Flexible payoff functions (including user defined) • Slow and unstable greeks

  11. Finite Difference Solver in FRONT ARENA Pricing Quoting Risk Management

  12. Pricing • Barrier option priced using local volatility

  13. Requirements on the Finite Difference Solver - Pricing

  14. Quoting to Electronic Market • Calculate theoretical bid and ask prices and send to electronic exchanges

  15. Requirements on the Finite Difference Solver - Quoting

  16. Risk Management - Portfolio Sheet • Portfolio with positions and greeks • Hedge suggestions

  17. Risk Management – Risk Matrixes • Vega Matrix showing volatility risk • Underlying price vs Volatility shifts

  18. Requirements on the Finite Difference Solver – Risk Management

  19. Conclusion: Selection of Valuation Methods

  20. Conclusion: Requirements on the Finite Difference Solver

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