Alexander Sokol Gives Insights at Global Derivatives 2016

May 18, 2016

Regulations appeared high on the agenda at this year’s Global Derivatives conference. In 2016, the ISDA introduced an update to the 1994 ISDA Credit Support Annex. The amended version now allows parties to agree on variation margin to comply with the new requirements. This document serves as the Annex to the Schedule of the ISDA Master Agreement developed for transactions subject to New York law.

Academic giants joined in lively panel discussions to share their latest research and insights. For the first time, the Global Derivatives conference welcomed the next generation of quants. They heard from the top quants about current trends and what the future of the industry could look like.

Alexander Sokol, CEO of CompatibL, shared his insights on such themes as initial margin, settlement risk and models for margin period of risk (MPoR). In particular, when outlining the dynamics during the period prior to default, he talked about two types of payment and stressed the serious pitfalls of a missed trade flow, which may lead to a default and trade termination unless tackled promptly. Talking about MPoR models, Alexander underlined that when ISDA/CSA requirements are incorporated into the model the residual credit valuation adjustment (CVA) under initial margin (IM) can be as high as 20% or 50%, depending on the portfolio. Therefore, he concluded, models and margins require further improvement and a lot of work will need to be done in the future.

In his comment on opportunities for effective trading and risk management in the light of adjoint algorithmic differentiation (AAD), Alexander stated that the computational burden relevant to financial calculations may now decrease as AAD has transformed CompatibL’s software program: a “bump and reprice” approach may now be avoided, as the computational cost becomes a fixed multiple where the number of sensitivities to be accounted for is irrelevant.

About Global Derivatives 2016

Global Derivatives 2016 offered 5 full days of content, over a dozen of streams and over a hundred of speakers, two new summits (fintech and disruptive innovation Summit; buy-side Summit), and workshops for young quants.

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