Nasdaq (NASDAQ:NDAQ) today announced it has developed an innovative new methodology to conduct investment portfolio risk calculations and produce predictive analytics, based on advanced machine learning capability.
The functionality will be integrated into Nasdaq’s Calypso platform, which is used by banks, insurers, and other financial institutions globally to access capital markets, process front-to-back office treasury workflows, manage risk, and meet regulatory reporting obligations.
Nasdaq’s machine learning technology is combined with a sophisticated form of mathematical modelling that can significantly improve the efficiency of conducting the most complex trading and regulatory risk calculations. It transforms the time taken to price financial instruments across millions of scenarios, processing the most complex products up to 100 times faster whilst maintaining high levels of accuracy. It can also significantly reduce the amount of physical infrastructure required to run those calculations.
Gil Guillaumey, Senior Vice President and Head of Capital Markets Technology at Nasdaq, said:
“All financial institutions trading OTC derivatives are required to perform increasingly complex calculations to meet internal risk controls and regulatory mandates. Maintaining the necessary infrastructure and systems can be outrageously expensive, inefficient, and increasingly impractical regardless of cloud elasticity strategies. The sheer scale of computing power required to meet the most demanding regulations, alongside the strategic benefits of more accurate real-time analytics, is driving a profound rethink about how we can leverage AI to reduce the cost of compliance.”
Called the XVA Accelerator, Nasdaq’s innovative technology uses a mathematical approach known as Chebyshev Tensors, drawing on a patented technique and modelling expertise from MoCaX Intelligence. It incorporates a breakthrough mathematical theorem by Sergei Bernstein that allows users to identify groups of scenarios that are highly likely to converge at an exponential speed toward the target result. This will allow very accurate approximations for an extensive range of scenarios, whilst requiring substantially fewer calculations than the original method.
The Chebyshev Tensors in the XVA Accelerator are calibrated in a dynamic manner each time an XVA calculation is launched. As a result, it adapts immediately to changing market conditions, which can prove particularly valuable in moments of market disruption.
With this technology, the Nasdaq Calypso risk analytics suite can rapidly adjust during periods of heightened volatility, or fluctuating interest rates, by identifying a smaller number of ‘smart’ scenarios to provide more timely risk analytics. The model can transparently detail how it has arrived at each assumption and lower the energy requirements, or carbon footprint, associated with conducting computationally intensive calculations.
Ultimately, this approach can significantly improve execution times, reduce costs, and empower financial institutions to more effectively manage risk.
As a scaled platform partner, Nasdaq draws on deep industry experience, technology expertise and cloud managed service services to help 3,500+ banks, brokers, regulators, financial infrastructure operators, and buy-side firms solve their toughest operational challenges while advancing industrywide modernization.
