6 Conclusions and Future Work

The concept of composite traded instruments is particularly effective in extending the system. The analysis of new structured products shows that the majority can be thought of as a composite of plain vanilla instruments. An example of such a product is the Vonti [TagesAnzeiger98], a combination of a bond and a stock option, which has just been issued and is currently being discussed in the finance section of Swiss newspapers.

The focus of this thesis was not the graphical user interface, so only a simple one was built. There are many ways to improve the user interface. There needs to be ways of viewing risk data, such as a 3-d graph of the sensitivity matrix. There should also be tools to graphically manipulate input data, e.g. a graphical yield curve editor.

Performance considerations have not been taken into account in the current version of the framework. Especially VaR simulations and the Black Scholes option pricing model require some optimizations to be able to handle reasonably sized portfolios. One aspect of optimization is the aggregation of market factors. Consider a large portfolio of different American stocks. The time needed to compute VaR could be significantly reduced by assuming that all stocks are perfectly correlated with the S&P500 index and using that index as the only market factor instead of considering all stock rates.
 
From the user’s point of view there are several requirements that have not been satisfied yet, the major ones being:
 

Taggable trades

In practice, trades are often entered from different systems and transferred to the risk management system at different point in time during the day. Assuming that a trader enters a trade to hedge another one in a different system, the problem might occur that only the hedge is taken into account for risk analysis. Therefore, it must be possible to tag a deal as only to be considered for risk evaluation if other deals are present as well.

Automatic instrument definition

Market feeds contain descriptions of standard instruments. The system should provide the functionality to read those feeds and automatically create the correspondent instruments instead of the user having to create them manually.

From a design standpoint the system can be improved by changing the portfolios from being collections of trades to collections of traded instruments (refer to section 3.4 for information on why this is needed). The Configurable Prototype pattern [Sternbach98] should be considered to define variations of financial instruments that are reissued on a regular basis. The ideas of asset flow generators from [COG96] should be taken into account as a potential shorthand way of describing financial instruments.
This project has shown that the insights gained from frameworks and patterns can help build flexible applications for the finance domain. Although the current risk management framework is only a prototype and leaves much room for improvement, it can be used as an example and provides valuable ideas for building a real world system.