Hedge Funds Embrace Risk Management10.01.2014
Hedge funds and other asset managers are viewing risk management as a source of competitive advantage rather than a back-office function, according to Robert Newhouse, chief executive of Victor Technologies.
“It used to be risk was sort of a ‘check-the-boxes’ activity which you had to do because investors required it,” Newhouse told Markets Media. “What we’ve seen over recent times is the idea that risk management is becoming a value proposition, a differentiator for firms.”
Newhouse said Victor Technologies, a provider of risk management technology for options trading, has had success with hedge funds that are using risk management as a way to garner additional investors.
“What they do is effectively pitch to the investor that they have a better risk platform than some of their peers, they’re better protected should there be another market downturn or another financial crisis like obviously was a few years back,” Newhouse said. “So the idea is that risk management is going from a check box to effectively a value proposition and a way to entice investors to have a higher level of comfort.”
Victor Technologies provides a risk management platform, margin calculation tools and a market volatility feed for U.S.-listed equity and index options, with various options available for inputs, business logic, smoothing, and delivery mechanism. Victor also generates derived Greek values for listed option risk parameters, providing per-strike breakdowns of Delta, Gamma, Vega, Theta, and Rho.
Volatility arbitrage funds and other funds that employ option hedging strategies are using the risk management platform to monitor margin requirement of their trading in real time, and the volatility feed for their own trading or to compare against their own generated volatility calculations.
The volatility feed is offered in two primary configurations, to allow for either matching to screen-based pricing, or alternatively matching to OCC-specific output so as to leverage volatilities for margin and risk management purposes.
“In general, option traders look at volatility to help them price options that help them figure out whether or not they believe the screen prices are correct,” said Newhouse. “And so, our volatility feed in its most basic use case can help a trader determine what current volatilities in the marketplace are.”
Victor Technologies is partnering with Activ Financial to deliver its market volatility feed as part of Activ’s market data platform. The volatility feed will be made available to Activ data feed subscribers in real-time via Activ’s global distribution network.
“By providing our volatility data via Activ’s distribution network, we are helping traders and risk managers make informed decisions and mitigate risk with regards to the derivatives they are trading,” said Newhouse. “Instead of having to pull information from two separate platforms, Activ users can access our market-leading volatility feed directly via the Activ API, simplifying integration efforts.”
Featured image by goranga/Dollar Photo Club
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