Risk Management: Derivatives 

Risk Management

Large multinational banks often use a variety of instruments in order to protect themselves from risk. One of the most common ones is options. These are contracts which allow the buyer the right but not the obligation to exchange an asset at a specified price on a specific date. These are used typically to manage risk and ensure that the bank is not overexposed to market risk in any specific sector.

Goal

The objective was to integrate a large number of variables such as stock prices, momentum, earnings releases and 10-K reports, etc and generate aggregate estimations of future asset prices. These alpha signals had to be made available to traders for them to be able to better hedge risk on real time.

Our Approach

An automated solution built on Python was created to allow the client to anticipate unusual movements of the market. This tool allows them to better provide their services and manage the risk associated with it. Interactive graphical tools were built in Java Swing and were integrated with current floor trading systems to better assess the best course of action to take in all scenarios.

Our Results