Business opportunities afforded by progress in financial modeling and advanced technological solutions
 The use of Computational Finance, i.e. algorithmic trading and high frequency trading (HFT), on the financial markets is becoming predominant. The gains are clearly substantial, however, more and more people are alleging that algorithmic trading, mostly HFT, is insidiously affecting the capital markets stability.
Regulators are tackling the situation hands on with questions such as: should there be a dedicated legal framework? Are dark pools acceptable? Should market places align their infrastructure? etc.
There is currently a unique combination of market expectations, maturity of scientific models and availability of new technological platforms:
- Market expectations: With annual benefits estimated to be €2bn for HFT alone (excluding all other kinds of algorithmic trading), financial institutions are ready to invest significantly in order to optimize the performance of their trading activities.
- State-of-the-art modeling: Advanced mathematical models have been developed to fulfill the principal expectations: Pricing, forecasting, risk management, and portfolio management.
- Advanced technologies opening up new opportunities: E.g. semantics and sentiment analysis applied on information flows, and HPC techniques applied to HFT.
This white paper presents the business opportunities afforded by recent progress in financial modeling and advanced technological solutions. It also suggests the regulation mechanisms that must be put in place to mitigate the risk of uncontrolled volatility in capital markets.
In the near future, this combination will lead to the emergence of innovative products (e.g. new high-performance systems for HFT) and services (e.g. financial information or Simulation ‘as a Service’).
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