A Shot in the, Arm for Derivatives Software.

• Author: Leib, Barclay T.
• Position: NumeriX - Brief Article - Company Profile

When retired Microsoft executive Gregory Whitten recently coughed up $32 million in late-round financing for derivatives quantitative and modeling firm NumeriX, a flurry of attention rippled through the derivatives software world. Whitten had been Microsoft's chief software architect and the single most important person in developing Microsoft's Windows application. Where his dollars now flow could well be an indication of yet another software success story.

NumeriX has long been known for its state-of-the art derivatives risk modeling capabilities. The company's first claim to fame came in 1996, when it released an extremely fast Monte Carlo pricing and stress-test simulation source code within its 'Time-Library Toolkit." Merrill Lynch & Co. quickly bought this latter product and became NumeriX's initial customer.

Today, the company has 50 of the world's top physicists, mathematicians and software engineers working to solve further mathematical inefficiencies in the derivatives market. This is the area where someone has to grapple with the manner to appropriately price every new structured product Wall Street wants to invent. Is it better to use certain models, or is a combination of different models best in specific circumstances?

Paying attention to the robustness of one's derivatives pricing software can be important. According to Alexander Sokol, chief technology officer of NumeriX, "Use the wrong model with overly simplistic assumptions, and you risk ending up with a derivatives valuation that is 10 bid- offered spreads away from their true fair value." NumeriX's mission is to help its customers avoid such mistakes, and perhaps most importantly, to allow clients to properly house and account for new derivatives without having to rely on any stopgap spreadsheet solutions.

NumeriX's primary customer list features sophisticated banks and other software vendors. Like the "Intel Inside" concept, NumeriX's source code has already been integrated as a premium service within the systems of derivatives risk management providers Fenics Ltd. (now part of GFI Group) and Murex, among others. The firm has also partnered with major accounting firms such as Arthur Andersen and KPMG, and more recently arranged an alliance with global broker Garban...