fasterRISK DATA and ANALYTICS 07 October 2008 London

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Andrew ParryJ.P. Morgan Exotics and Hybrids

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Introduction : Faster, Better

Faster should be used to drive better Harness technology for business outcomes Understand current state of the art Select what will work in the organisation

Data Models to structure data Static models “Credit Derivative” Process models “Confirmation”

Analytics Models to understand markets Markets are dynamic This is not physical science

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Keynote ONE : Buy Side and Quants

Risk seeking and risk aversion More useful than “buy side” and “sell side” Form clear business strategy Then use models and technology to execute

Quantitative models “Garbage in, garbage out” Get the important answers approximately right Utility should trump beauty

We will look at how models and technology can be used Complexity Scale Synchronisation and Information Technology People

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Complexity

Handling complexity needs more than just hardware Decomposition

— How far can the problem be broken down ?— Is it worthwhile to find out ?

Specification— How accurately can you specify the problem ?— How well does implementation match specification ?

“One Genius with Excel” High ability to deal with complexity Low ability to scale

“One Giant Server Farm” Some potential to deal with complexity High potential to scale

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Scale

Pure scale is more of an existing outcome Scale by design

— Active choice to exploit possibilities— Desire and ability to scale : Google

Scale by happy accident— “Clock speed era” of performance gains— “Throw hardware at it” comfort zone

Bad scale is more and worse Wrong or stale results more quickly High number of implicit dependencies

Good scale is more and better outcomes Correct and useful results more quickly Least number of explicit dependencies

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Synchronisation and Information

“Communication is the process of the synchronization of information.”

Robin Milner, founding father of process calculus

Synchronisation and Information are distinct Knowledge does not change depending on who told me and

when— “Joe talks to me about Lehman Brothers Inc. Credit Event”— “ISDA sends me an email about Lehman Brothers Inc.

Credit Event”

Representing synchronisation : two types of distributed systems Message passing : move the data to the process Shared memory : let the process access the data

Representing information : knowledge representation Static models : somewhat difficult Process models : more difficult

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Technology

Representing synchronisation Message passing

— Cache consistency— Representation sharing

Shared memory— Read and write access control— Single representation

Representing information Difficult to create and maintain high quality models Ensuring systems realise the models

Big picture No one factor guarantees a good outcome

— Load input, process, store output Look at what is driving the time and cost of a business

outcome— That is valued by the business

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People

Skills, Motivation, Understanding Technology alone will not achieve a good outcome How are roles defined ? How do they relate ?

Most people can’t cover more than two roles Business Sponsor Financial Engineer Quantitative Developer Software Engineer Systems Engineer

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Questions

Buy, Build, or Rent ? Established model of buying for flow, and building for exotics Newer entrants are more open to objective choice

Does the code exploit the hardware platform ? General purpose CPUs ? NVIDIA GPU ?

How to make the rest of the organisation faster ? Front office may lead, but the rest of the organisation needs

to follow Example of OTC confirmation automation

fasterRISK DATA and ANALYTICS 07 October 2008 London