With an increasing number of intermediates working with complex structured products, UnRisk emphasizes the need for fast solutions with maximum accuracy. Quick must not mean dirty!

The trend to increasingly complex deal types, with increasingly short time to market is still ongoing. The number of market participants is increasing, from the very first sell side to the very last buy side. “There are more intermediates: this is what we observe,” Says Herbert Exner at Unrisk. “As new participants join in´the market shrinks for each player and there is more pressure on the sell side to create new sophisticated structures and deal types.

This is the opportunity which we face.” Unrisk, well known to readers of Wilmott as purveyors of the Unrisk2 pricing engine are the specialists with the mandate to provide big solutions for people in need of the best numerically-based approaches.
The Austrian outfit, a partnership between Andreas Binder’s MathConsult and Herbert Exner’s Uni Software Plus, has seen new emphasis in certain areas due to ongoing market conditions and have been quick to act.

“It’s worked well in the past. In the beginning we were positioned on some of the intermediates, the mid-sized bank in the territory which would buy something from a large product maker and issuer and sell it to, say, an insurance company. There are many of those and all of them, we can say, do not have large teams – they have more medium sized and small sized teams of quants and financial engineers. The total pressure works in our direction and interestingly enough they are all dealing with instruments and structures,” says Exner.

Binder provides a brief overview of the current scenario. “One of the reasons for the universe of structures available today is that interest rates are historically extremely low. Which means that if you are an insurance company and you have guaranteed your customers an annual yield of three or four per cent you will not achieve this with vanilla instruments. Therefore here’s a need for structures because there is a capital guarantee somewhere in insurance contracts and therefore there’s a need to take a higher risk for higher yields. Offsetting possibly high earnings against the guaranteed earnings of three or four per cent.”

From a positioning point of view,” adds Exner, “it leads us to offer a solution on one hand and a development environment on the other, that enables a market participant like a mid-size bank in a territory like Austria, or Switzerland to do their own valuations on the structures, get an insight into how and why they get results on prices, on risk parameters, and what have you. Due to the fact that there are many participants and the life cycle of the products are so short.”

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