1. FRONT ARENA

2. SunGard FRONT ARENA – The Company
From Theory to Practice - PDE & Finance, 2007 Håkan Norekrans, Product Manager
Agenda:
SunGard FRONT ARENA – The Company
Instrument Coverage and Valuation Models
The Finite Difference Solver in FRONT ARENA
Pricing
Quoting
Risk Management

3. FRONT ARENA – The Company

4. Founded 1987
Asset Class: OM Stockholm equity options
Workflow: Risk management
Customers: Swedish banks and brokers
Employees:

5. FRONT ARENA’s Business 2007
Asset Classes
Workflows
Equities
Fixed Income, Repos & Convertibles
Interest Rate Derivatives
Credit Derivatives
FX, Money Markets,
FX Options
Sales & Distribution
Market Making & Proprietary Trading
Risk Management
Back Office
Market & Price Connectivity
Hedge Fund Operational Integration
Equities
Fixed Income,
Repos & Convertibles
Interest Rate Derivatives
Credit Derivatives
FX, Money Markets,
FX Options

6. 150 Customers with 350 Installed Sites
Norway
Holland
Canada
Finland UK
Japan
Sweden
China
Germany
Switzerland
Austria US
Hong Kong
Taiwan
Thailand
Typical customers
Investment Banks
Private Banks
Hedge Funds .
Singapore
South Africa

7. Global Coverage - Local Focus
378 Employees
198 Product operation
166 Global services
14 Shared services
Stockholm
London
Frankfurt
Zurich
New York
Tokyo
Los Angeles
Hong Kong
Singapore
Johannesburg

8. FRONT ARENA - Vision Web Links :
“With FRONT ARENA’s integrated solutions, we use the same system across our Fixed Income, Interest Rate Derivatives and Equities desks. The openness and flexibility of FRONT ARENA enables us to react in a timely fashion to business requirements” Hans-Ulrich Hasse, Senior Vice President
Landesbank Rheinland-Pfalz

9. Instrument Coverage and Valuation Models in FRONT ARENA

10. Valuation Methods in FRONT ARENA
Analytical models
Default choice
Fast and accurate greeks
Often not available
Tree models (Binomial – Trinomial)
Traditional choice in finance
Relatively fast
Limited robustness and flexibility
Finite Difference
Increasing usage
Relatively fast and stable greeks
More complex implementation
Monte Carlo
Needed for complex pricing
Flexible payoff functions (including user defined)
Slow and unstable greeks

11. Finite Difference Solver in FRONT ARENA
Pricing
Quoting
Risk Management

12. Pricing
Barrier option priced using local volatility

13. Requirements on the Finite Difference Solver - Pricing
Numerical accuracy
High
Reliable greeks
Medium
Calculation performance
Low

14. Quoting to Electronic Market
Calculate theoretical bid and ask prices and send to electronic exchanges

15. Requirements on the Finite Difference Solver - Quoting
Pricing
Electronic Quoting
Numerical accuracy
High
Medium
Reliable greeks
Low
Calculation performance

16. Risk Management - Portfolio Sheet
Portfolio with positions and greeks
Hedge suggestions

17. Risk Management – Risk Matrixes
Vega Matrix showing volatility risk
Underlying price vs Volatility shifts

18. Requirements on the Finite Difference Solver – Risk Management
Pricing
Electronic Quoting
Risk Management
Numerical accuracy
High
Medium
Reliable greeks
Low
Calculation performance

19. Conclusion: Selection of Valuation Methods
Instrument Type
Simple
Complex
Valuation Parameters
Analytical
Finite difference
Monte Carlo

20. Conclusion: Requirements on the Finite Difference Solver
Pricing
Electronic Quoting
Risk Management
Numerical accuracy
High
Medium
Reliable greeks
Low
Calculation performance