Sometimes I look back at how things have changed since I started in this industry. It’s always interesting to see how things have changed as it can hint at to where things will head next. So join me on this Murex retrospective.

I started working for Murex in 2000: Matrix, internet bubble, Y2K bubble burst, Nirvana (hum, no, they were already gone). I was quite impressed with my mentor at the time as she knew everything about Murex and finance. Murex was about to release its first Java based version (the first of mxg2000 generation).

Banks were not expecting so much from vendors: they had the financial knowledge and all they expected was a software that could do what they wanted to do.

Over the years, this has changed quite a lot. They still have expertise domains but often will use vendors as a source of information as to what is being done on the market and what they should be doing. Let’s drill into some specifics:

Rate curves

Back in 2000, people were satisfied with 1 curve per currency without much focus being put on basis curves and risk.
Then came the USD basis curves and later the single currency basis curves with a major focus on OIS curves. Now you can add to the mix funding curves and from 1 to 2 curves per currency, you have now 5-6 curves for each currency.

Volatility

Volatility also changed over the years. Started quite simply with an ATM curve and smile. But complexity started to kick in. Normal volatility came first as it offered a more stable measure of vega without any noise from prices. It accelerated when interest rates started to become negative and one had to use either shifted lognormal or normal models.
Then the volatility models became more popular and a must have: SABR for instance where traders start to measure their risk against the parameters.

The changes also occurred in Murex when trying to cater for a demand of always more flexibility: workflows, viewers, eTradepad, system architecture.

What’s next?

Can we expect the same trend to keep going: an always more flexible software and an industry always more complex?

I’m not sure. In regards to the industry, the move towards clearing for derivatives might push the banks to investigate more complex products that would fall outside clearing. But would there be a market for them, especially if more and more derivatives are cleared and benefit from a better price?
Or would the market data and pricing models increase in complexity in order to offer a price that is always closer to where the market actually is?

Regarding the software, it could always offer more flexibility but with flexibility comes complexity. Software complexity has a cost in terms of upgrade, configuration and maintenance. So past a certain point, the benefits are basically not worth the cost. Have we reached that point yet, I’m not sure at all?

And you? What do you think about the future?
And how was your learning experience: daunting? Challenging? Or a walk in the park?