Project: Transparency in Financial Markets
The current financial crisis has put strong emphasis on fair and accurate valuation for financial derivatives products. Financial services, regulators, auditors, risk control groups in investment banks, asset management firms, and more generally broad investors using derivatives products are desperately looking for more transparency on financial derivatives. _x000D__x000D_The goal of this project is precisely to answer this need and to offer an internet based independent and transparent valuation platform for financial derivatives with the use of scientific methods to determine fair valuation. This will include the market sectors equity, foreign exchange, inflation, commodity, interest rates and retirement provision plans._x000D__x000D_The CO difficulty of a fair price for financial derivatives comes from the fact that these products are traded over the counter (OTC), with no quoted public prices from exchange houses. Hence, fair valuation can only rely on the appropriate mathematical modeling of their intrinsic financial risks through probability weighted scenarios._x000D__x000D_The innovation of this project is to rely on scientific methods to determine accurately the price of these OTC derivatives. This is often reported to be the valuation "marked to model" compared to "marked to market". This project will hence use cutting edge developments in the field of financial mathematics with innovative mathematical algorithms developed jointly by Pricing Ps and MathFinance and the research support of two world class academic research centers (the CERMICS and the University of Trier). Once the platform goes live, it will be distributed by major networks. NYSE Euronext, the biggest exchange in the financial market, has already signaled its strong interest for commercial distribution._x000D__x000D_This project consortium will regroup 4 participants. Pricing Ps, a French R&D SME and a leading company in financial mathematics modeling will be the project leader. MathFinance, a German R&D SME, leveraging on a global network of financial engineers providing consulting and front office financial modeling, will bring complementary expertise in the field of mathematical models for foreign exchange derivatives. The CERMICS (Centre for Education and Research in Mathematics and Scientific Computing of Ponts Paritech) and the research center FB IV - Mathematics of the University of Trier will do research on advanced algorithms for very fast computation of complex models like multi factor stochastic volatility modeling, hybrids modeling and calibration algorithms._x000D__x000D_Although this project got a positive feedback in the last call of the Eurostars program, it could not be financed. It is addressing a burning issue that has major implication for the economical world. Meanwhile the project has made some progress. The consortium has also strengthened its research think-tank with participation of the university of Trier. To avoid exclusivity in the distribution, NYSE Euronext originally involved has been removed from the consortium._x000D__x000D_We have resubmitted this project as it has become even more topical with the current financial crisis environment. This project should lead to a major leader in the field of independent valuation provided that the various SME participants and research centers are supported by the program. _x000D__x000D_In terms of deliverable, this project should result in the following _x000D_• An independent valuation platform for equity derivatives products_x000D_• An independent valuation platform for interest rates products_x000D_• An independent valuation platform for inflation derivatives products_x000D_• An independent valuation platform for commodity derivatives products_x000D_• An independent valuation platform for FX derivatives products_x000D_• An independent valuation platform for retirement provision products_x000D__x000D_The resulting valuation platform should be commercialized within 24 months in a massive scale by NYSE Euronext and potentially other major networks.
| Acronym | TFM (Reference Number: 5144) |
| Duration | 01/01/2010 - 31/12/2011 |
| Project Topic | This project develops an innovative financial software that provides fair valuation and a rating scheme for non quoted financial products. The software will allow natural language description for payoff description coupled with advanced stochastic models and advanced calibration methods |
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Project Results (after finalisation) |
We collaborated with Pricing Ps and the other participants to work on Multi dimension smile: modeling and numerical method. We leverage our researchers to concentrate on hard to solve problem on Wishart processes and numerical implementation of these problems. |
| Network | Eurostars |
| Call | Eurostars Cut-Off 3 |
Project partner
| Number | Name | Role | Country |
|---|---|---|---|
| 4 | Ecole nationale des ponts et chaussées (ENPC) - laboratoire CERMICS | Partner | France |
| 4 | MathFinance AG | Partner | Germany |
| 4 | Pricing Ps | Coordinator | France |
| 4 | University of Trier (FB IV - Mathematics) | Partner | Germany |