09.06.2021

BMO Uses AI for Structured Note Pricing

  • BMO working with Riskfuel Analytics to help clients make faster, better investment decisions
  • Successful pilot leveraged deep learning and fast neural nets to speed up valuation and pricing process

BMO Financial Group and Riskfuel Analytics a Toronto-based start-up, announced a partnership to develop models for pricing and scenario analysis of structured derivatives transactions. This comes following a successful pilot project, which saw quantitative researchers from both firms develop a solution to speed up valuation of autocallable notes which previously presented significant runtime challenges when priced using traditional valuation methodologies.

“Structured notes are traditionally priced using slow numerical techniques that simulate an extremely large number of possible future states of the financial markets,” said Ryan Ferguson, founder and CEO of Riskfuel. “Riskfuel uses Deep Learning to replace these slow simulators with very fast neural nets. We are excited to be working with BMO on making production-ready versions of such models.”

As an early adopter of this technology for front office pricing, BMO’s partnership with Riskfuel Analytics adds to its track record as an innovator in Capital Markets, employing AI to improve the client experience and operational efficiency simultaneously. Working with Riskfuel will reduce reliance on slow and expensive financial models to calculate pricing and risks of structured products.

“Riskfuel has delivered a cutting-edge proof of concept that promises the most significant step forward in quantitative finance in a generation. Removing the runtime hurdle opens the door for significant advancements in accuracy and realism of structured notes pricing models,” said Graham Wells, Managing Director and Head of Equity Quantitative Modeling in Global Markets Engineering, BMO Financial Group.

“Riskfuel’s leading tools and expertise will help us expand our client base, drive higher trade flows, generate new risk insights and lead to better product design and selection. This partnership is enabling us to assist our clients with more complex hedging strategies and, with accelerated pricing and analysis, help our clients make faster, smarter investment decisions,” said Lucas Caliri, Managing Director and Head of Cross Asset Solutions, BMO Financial Group.

BMO continues to make bold moves to drive its digital first transformation, relentlessly innovating across its entire business — from product, service, and platform design, to ensuring a scalable agile foundation across the bank, to developing solutions that meet client needs. This includes the dramatic acceleration of self-service, creating common cross channel experiences, the elimination of manual processes and a strong focus on technology in all our businesses, including BMO Capital Markets. BMO Capital Markets’ 2020 acquisition of Clearpool, a New York-based electronic trading platform, has established BMO as a leader in electronic trading.

Source: BMO

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