Home-grown technology to take risk out of business

CSIRO exotic options pricing software enables analysts to have a clear graphic overview of future options prices and risk parameters. This graph shows the local volatility of the foreign exchange Euro/USD as implied by the 'current' market vs exchange rate level and time to price exotic options. Photo credit: CSIRO

While it may not stop another financial crisis, home-grown technology could be on its way to help over 350 institutions globally including banks and hedge funds significantly reduce risk.

The Australian Commonwealth Scientific and Research Organisation (CSIRO) announced this week that it has extended its partnership and licensing agreement with GFI FENICS, the market standard for pricing and analysing Foreign-exchange (FX) options.

The research company first entered into an agreement with GFI FENICS in 2005 that enabled the finance company to use CSIRO's Reditus software, which is a tool for pricing complex financial options.

The license arrangement has been extended for a further unspecified number of years and will involve further development of the product.

The origins of this technology come out of engineering software that was developed within CSIRO called Fast Flow, originally developed for modelling fluid dynamics in heavy industry.

“There's a high level of similarity between modelling computational fluid dynamics and the price behaviour of traded assets,” said CSIRO Mathematical and Information Sciences General Manager of Business Development Andrew Dingjan.

“Financial systems are complex. Bringing in advanced science can provide more reliable pricing of exotic options giving banks, hedge fund, trading and fund portfolio managers the knowledge to buy and sell in a more timely manner and with much greater confidence,” he said in a statement.

Dingjan would not disclose how much this deal is worth to Cisco, as that information is commercial in confidence.

“We consider it to be a very significant important contract and it will have a strong impact on the market globally, so it is good to transfer Australian technology in to a global environment.”

CSIRO will be employing three full time staff comprising mathematicians and software engineers to work on this project.

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