With its second edition on May 27th, the Parisian Model Validation seminar has proved itself as one of the central rendez-vous for Model Validation. The premises of the Institut Louis Bachelier, an association supporting the research in the field of finance set in the old financial quarter in Paris, welcomed two exceptional speakers and more than 40 participants, in large part practitioners from model validation teams of french banks and from consulting companies and a number of researchers from the major parisians academic institutions.
The first speaker, Marco Avellaneda from New York University, presented some recent advances in the field of risk management for central counterparties. The talk gave a detailed overview of the regulatory aspects and fund requirements for CCP clearing houses and proposed an innovative mathematical framework for stress-testing the margins and fund contributions based on a combination of extreme value theory to model market risks and random matrices to model the clearing member's portfolios.
The talk of the second speaker, Etienne Koehler from the counterparty risk team at Barclays Capital, provided some complementary insights on model risk. After reviewing the classical approach to pricing and hedging based on replicating portfolios, the speaker addressed the importance of having at hand alternative methodologies funded on back-testing in order to enhance the pricing, in particular in crisis and post-crisis scenarios. The presentation of two case studies of hedging of a vanilla and of a complex IR/FX hybrid allowed to highlight the need for introducing new factors in the pricing procedure, in particular in volatile or crisis phases of the market, and how to model them.

The 1st Parisian Model Validation seminar was a complete success with more than 45 participants, mostly practitioners, and 2 outstanding speakers:
The first speaker, Rama Cont, from CNRS and Paris 6 University, presented cutting-edge methods to compute pertaining model risk measures for portfolio of derivatives, with applications to the pricing of barrier options and index equity options.
Alberto Elices, from the model validation team at Santander, presented a very deep survey of best practices for Model Validation, and also discussed how the crisis re-shaped and re-sizes the activity of Risk and Model Validation teams. He also presented a comparison of a Heston-based and of a Vanna-Volga pricing and hedging strategy with full simulations of the calibration, pricing and hedging process on the FX market.
The cocktail/networking time was very cosy with vivid discussions between professionals of french and european 1st tier banks, of banking institutions, consultants and technology providers.

Louis Dreyfus Investment Group selects the Zeliade Quant Framework 1.3.

Claude Martini, founder and CEO of Zeliade, is invited by the Tor Vergata University in Roma to give 2 talks on the recent advances in stochastic volatility and implied volatility models, to which Antoine Jacquier (Imperial College and Zeliade) and Stefano De Marco (Univeristy of Marne-La-Vallee, Univeristy of Pisa and Zeliade) contribute.
The first talk, "HESTON 2010", loosely follows the corresponding Zeliade White Paper: The Heston model (1993) has emerged as the reference model among stochastic volatility models. Despite being almost 20 years old, is has still very recently been the topic of a blooming of deep studies, either on theoretical properties of the model (especially the shape of the volatility smile), or on numerical issues related to the computation of option prices, and also on calibration. In this talk we will present a summary of the recent theoretical advances made by Andersen and Piterbarg, Jacquier and Forde, Jacquier and Mijatovic, Tehranchi, and others. We will also spot some theoretical open questions of practical importance.
The second talk, "KUDOS TO GATHERAL SVI MODEL", is about very recent results on the relation between Heston and SVI, and on the practical calibration of the SVI model: Jim Gatheral (Merrill) has proposed in 2004 an explicit "model" for the volatility smile, the "Stochastic Volatility Inspired" model. Despite its parsimony, the fit of the SVI model to market data is amazing. We will present 2 joint works with S.De Marco (Pisa/Marne La Vallee and Zeliade) on the calibration of the SVI model, and a recent work of Jacquier (Imperial and Zeliade) and Gatheral which shows that the long-term Heston volatility smile is exactly given by the SVI formula, illuminating the original inspiration of Gatheral and making of SVI the reference implied volatilty model.

The Louis Bachelier Institute, La Banque postale, the Telecom Institute and Zeliade launch the Parisian Model Validation seminar.
The seminar, to be held quarterly, will contribute to set up a community of practitioners, technology providers, consultants, academics, on the very rich and urgent topics of model risk and model validation.
Each session will involve a theoretic talk, a practitioner talk and a cocktail/networking time.
The seminar will be held in the beautiful premises of the Sup Telecom french school in Paris.
For information and registration purposes: Contact us.

Zeliade has a new White Paper on Model Validation : "Model Validation: theory, practice and perspectives" , co-authored with Patrick Henaff, who leads the Euclide project at Telecom Bretagne and former Head of Quant Commos at Merrill.
In July of 2009, the Basel Committee on Banking Supervision issued a directive requiring that financial institutions quantify model risk. The Committee further stated that two types of risks should be taken into account: ``The model risk associated with using a possibly incorrect valuation, and the risk associated with using unobservable calibration parameters''.
The resulting adjustments must impact Tier I regulatory capital, and the directive must be implemented by the end of 2010. On the surface, this seems to be a simple adjustment to the market risk framework, adding model risk to other sources of risk that have already been identified within Basel II. In fact, quantifying model risk is much more complex because the source of risk (using an inadequate model) is much harder to characterize. Twelve months away from the deadline, there is no consensus on this topic. There is fortunately a growing body of literature, both from the academia and the industry, and the purpose of this paper is to summarize the development of the notion of ``model risk'' and present the current state of the art, before outlining open issues that must be resolved in order to define a consistent framework for measuring model risk.

Zeliade sponsors the "Recent Advancements in the Theory and Practice of Credit Derivatives" conference September 28-30 2009, Nice, France
The recent decade witnessed a rapid development of more and more advanced quantitative methodologies for modeling, valuation and risk management of credit derivatives. The size and complexity of the credit markets in general, and credit derivatives markets in particular undoubtedly posed a challenge for quantitative modelers and for market practitioners.
The recent turmoil in the credit markets can be attributed to many factors, but one of the factors is probably the fact that in many respects the challenge has not been fully, and, sometimes, properly addressed.
New solutions, both in terms of models and softwares are therefore needed. Zeliade's products such as ZQF, a flexible tool for pricing and risk management allowing the implementation of new products and proprietary algorithms, contribute to this renewal of financial solutions.
The conference, that addresses pending issues in the modelling of credit derivatives, gathers the very best worlwide experts of Credit risk, stemming altogether from the academic world and prestigious practitioner teams.

Zeliade is the Gold sponsor of "the 2nd Marcus Evans Annual Pricing Model Validation: Mitigating Model Risk" ,17th & 18th September 2009, London.

Implied Volatility models have became very popular. The Zeliade Quant Team has a new calibration algorithm for Gatheral’s SVI model: Quasi-Explicit Calibration of Gatheral’s SVI model

The Zeliade Quant Team reports on recent advances in the Heston model of stochastic volatility: Heston 2009

The Zeliade Quant Team reports on its research on the mechanisms underlying the subprime crisis.
The report highlightens the importance of high correlation regimes and systemic risks and contagion, in the context of the liquid index tranches but also for European Prime RMBS and SME securitizations. The results in the report have been presented at the 2008 International Financial Research Forum, Paris, March 27-28.
CDOs: How far should we depart from Gaussian copulas?

Zeliade presents at PRIT’08, the major Ile-de-France innovation 2008 event.
Claude Martini presented the CRIS platform within the slot "Pricing and Risk tools" of the Pôle de compétitivité "Finance Innovation".
Zeliade is also selected by Microsoft IDEES, to be part of the Microsoft booth, with a demo of its flagship product: Zeliade Quant Framework.

Release of ZQF V1.2 - Newsletter 2

Zeliade sponsors the "2nd Annual Pricing and Valuation of Structured Credit" Marcus Evans conference

The CRIS Consortium Has Been Set Up to Provide a Platform for Independent Valuation and Risk Management of Credit Derivatives

Zeliade has become a certified Microsoft partner.

Zeliade Systems announces a partnership with Digipede.

Risk Magazine lists Zeliade Systems in its annual software survey that details the latest developments in technology for derivatives pricing, trading and risk management.

Ixis-AM, a major Asset Manager, chooses Zeliade Systems as a supplier of tools and services

Aleva, a leading Pension Fund Advisor, chooses Zeliade Systems as a supplier of a risk assessment tool

Natexis Banque Populaires, a major French Bank, chooses Zeliade Systems as a supplier of tools and services

Banques & Marchés publishes an article by F. Patras from Zeliade: "Correlation and defaults: valuation of first-to-default swaps in a multi-name model a la Lardy-Finkelstein"

Zeliade Systems is a keynote speaker at the "Stochastics Methods in Mathematical Finance" conference at the University of Rome La Sapienzia, covering the following theme: "Correlation in the credit risk market: current trends and problems"

Bielecki, Rutkowski, Jeanblanc, Crépey are publishing a research article sponsored by Moody's and Zeliade: "Valuation of Basket Credit Derivatives in the Credit Migration Environment"

Nexgen Financial Solutions, a large asset manager, chooses Zeliade Systems as a supplier of tools and services

Zeliade Systems sponsors the 2-day conference on "Capital Structure Arbitrage". F. Patras was a keynote speaker for Zeliade discussing "Correlation Issues in Structural Models: the example of default swaps on two credit instruments"

Dexia, a major European Bank, chooses Zeliade Systems as a supplier of tools and services