Financial Instrument Price Calculator with Dynamic Model Integration
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Solution Overview
Problem
Banks and financial institutions face challenges in easily recalculating the price of financial instruments due to changing terms and circumstances, as well as the limitations of existing models in providing accurate valuations, necessitating a method for multiple valuations using projections and customized models.
Innovation Solution
A price calculator with a two-stage process, involving data projection and valuation, utilizing Business Add-In technology to seamlessly integrate external models and allow user-defined coding, enabling decoupling between system components and enabling multiple valuation methods and scenarios.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If a single valuation model is used for financial instruments, then the system is simple and easy to operate, but it cannot provide accurate pricing when terms change or when the model fails
Solution Approach 1:
The valuation system is segmented into multiple independent valuation models (e.g., market approach, income approach, cost approach) that can be applied separately to different aspects of financial instrument pricing. Each model can be executed independently and their results combined or compared to achieve more reliable pricing.
Solution Approach 2:
The system is designed to support multiple valuation models within a single platform, making it universally applicable to various financial instruments and pricing scenarios. The system can adapt to different instrument types (loans, bonds, derivatives) and pricing needs by selecting appropriate models from the available suite.
2Adaptability or versatility
If multiple valuation models are integrated into the system, then pricing reliability improves, but the system becomes more complex and difficult to maintain
Solution Approach 1:
The system allows dynamic selection and configuration of valuation models based on the specific financial instrument and pricing scenario. Users can activate or deactivate models as needed, and the system adapts its behavior based on which models are available and appropriate for the current task.
Solution Approach 2:
A standardized interface layer is introduced between the various valuation models and the core system, acting as an intermediary that manages the complexity of multiple models. This interface handles model selection, parameter passing, and result aggregation, shielding the rest of the system from model-specific complexities.
3Adaptability or versatility
If the system allows easy integration of new valuation models, then adaptability improves, but the core system becomes more complex
Solution Approach 1:
The system enables users to integrate and configure new valuation models without requiring changes to the core system code. Through self-service mechanisms like configuration files, parameter settings, and user-defined parameters, new models can be added and activated by end users themselves.
Solution Approach 2:
The system manages model integration through parameter configuration rather than structural changes. New valuation models are incorporated by defining their parameters, data requirements, and execution characteristics, allowing the system to adapt to new models through parameter management rather than code modification.
Data Source
AI summary
A method is provided for calculating a price of a financial instrument that includes obtaining parameters of the financial instrument from a financial database of transactions and determining the price based on a projection using the parameters. The method may further include selecting a model for determining the price and determining the price using the model and the parameters. The method may further include selecting at least one further model for calculating the price and determining the price using the at least one further model and the parameters. A system is provided for calculating a price of a financial instrument comprising parameters for the financial instrument and a processor in electronic communication with the financial database and adapted to calculate the price of the financial instrument based on a projection and the parameters. A computer program is provided that is stored on a memory and configured to be executed by a computer. The computer program includes program code for executing a method for pricing a financial transaction.