HPCwire: Option Engine: A Grid-Enabled Software Package to Evaluate Financial Options

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September 17, 2009

Option Engine: A Grid-Enabled Software Package to Evaluate Financial Options

by Francesca Mariani, Maria Cristina Recchioni, Francesco Zirilli

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In today's complex financial markets and with the 2008 financial crisis ongoing, the market actors feel the need of high performance computing tools for a fast evaluation of financial products. Often in order to get quick evaluations of financial products, simplified models are used. The use of simplified models most of the time produces inaccurate results. In order to efficiently evaluate financial products with state-of-the-art models we have developed Option Engine, a grid-enabled software package to evaluate financial options (http://www.ceri.uniroma1.it/ceri/zirilli/w5). Option Engine uses accurate financial models and exploits the power of grid computing. We begin answering three questions about Option Engine: What is its purpose? Why it is a high performance computing tool? Toward whom it is directed?

What is its purpose?

The purpose of the Option Engine software package is pricing rapidly and efficiently financial options. A financial option is a contract between two parties (a buyer and a seller) that gives today the buyer the right and not the obligation to buy or to sell a given quantity of a particular underlying good (asset, basket of assets, market index, commodity and so on) at a later day at a price agreed today. In return for granting this right (i.e.: the option), the seller collects a payment (the premium) from the buyer. The formulae used to price options (for example the Black Scholes formula) establish the fair value of the premium and are derived under some hypotheses using mathematical models (such as the Black Scholes model) that describe the dynamics of the price of the underlying asset of the option through differential or difference stochastic equations. A simple model usually implies that the option price can be evaluated rapidly, however the use of too simple models can lead to inaccurate option prices, that is to option prices useless in real situations. The extreme volatility of financial markets in the last couple of years has made imperative the use of sophisticated stochastic models to describe the dynamics of the underlying asset prices and the fast evaluation of the resulting (non trivial) option pricing formulae is becoming a need to be competitive in the market. The Option Engine package is an attempt to satisfy this need.

Why it is a high performance computing tool?

The Option Engine package is a high performance computing tool because it integrates successfully a part of QuantLib, an efficient open source software library for quantitative finance, and a Platform Computing grid product: Symphony Enterprise Soft Grid package. The realization of the Option Engine package has been made possible thank to the effort of CERI, a research center of Università di Roma "La Sapienza" (Roma, Italy) with the assistance of Platform Computing and of QuantLib. Option Engine shows how Symphony can be used to perform scientific computations. In fact in Option Engine Symphony is used to run QuantLib library routines. The Option Engine software package makes available in the Symphony environment (that is grid enables) twenty seven QuantLib modules. Once assigned a work load (i.e.: the computation of the prices of a set of options through the use of the QuantLib modules contained in Option Engine). Symphony allows to optimize the use of the available computing resources in the grid. The smart allocation of the tasks contained in the work load between the available computing resources made by Symphony makes the Option Engine package able to exploit the computing power of the grid, that is makes the Option Engine package an high performance computing tool.

Toward whom it is directed?

The potential users of the Option Engine package are practitioners and researchers working in financial and in academic institutions interested in evaluating financial options using a computing grid. The Option Engine package can be downloaded from the Web site: http://www.ceri.uniroma1.it/ceri/zirilli/w5.

Option Engine makes possible the use of the QuantLib grid-enabled routines and shows how to integrate the QuantLib library modules and the Symphony Developer Edition (DE) grid computing middleware. Let us begin describing briefly Symphony and QuantLib.

Symphony is a grid computing middleware that is used to build and deploy rapidly distributed services through a single, high-level paradigm for multicore and multi-node environments. Platform Symphony is widely deployed by financial institutions to process computer and time-sensitive applications, such as trading, pricing, risk analysis, profit and loss reporting and trade settlement applications, in real time across an Enterprise Grid computing infrastructure. Recently available as a free trial download, Platform Symphony DE provides developers with a powerful HPC tool to build and deploy service-oriented applications. The demo of Symphony DE can be downloaded here. With comprehensive and easy-to-follow coding examples, following the suggestions contained in the Symphony demo, developers can create and test high-performance application services in the language of their choice in record time.

The Symphony environment allows one to simultaneously run a number of tasks, even thousands of tasks, (i.e., financial option evaluations) on a computing grid. Generally multiple and simultaneous runs are possible on a multiprocessor (parallel) machine; however, these machines are expensive and not every financial or academic institution can have dedicated supercomputing centers with parallel machines.

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