– Patents cover frameworks for derivatives valuation, optimal portfolio construction and risk measurement
FinAnalytica, the leading provider of real world portfolio risk solutions for asset managers, hedge funds and multi-manager funds, announced today that it has been granted three patents covering its core fat-tailed risk, optimization and valuation methodologies, from the U.S. Patent and Trademark Office. Implemented as the cornerstone of the Cognity risk management platform, the patents offer a leap over those traditional quantitative methods that continue to face heavy criticism following the 2008 market crisis.
The first patent (USP 7,630,931) provides a method for the valuation of derivatives under the presence of fat tails. The second (USP 7,711,617) focuses on building optimal portfolios based on fat-tailed distributions and coherent risk measures. The third patent (Allowed USP Application 10/339,580), covers a flexible risk management and portfolio construction framework for fat-tailed Monte Carlo procedures.
These latest developments represent the culmination of years of research in the application of fat-tailed distributions in finance by FinAnalytica Chief Scientist, Professor Svetlozar (Zari) Rachev. Commenting on the news, he said, “These patents answer the three most important questions in quantitative finance – how to qualify risk, build optimal portfolios and price derivatives in a realistic framework that captures the four main phenomena observed in asset returns – fat-tails, volatility clustering, asymmetry and tail dependence.” Having realized his vision of a new paradigm for quantitative market risk, he added, “It is now extremely rewarding to receive approval one after another in a very short period of time.”
“We are pleased to have this external validation of the innovations developed by Zari, his colleagues and our quantitative research team. The methods behind the patents are already benefiting FinAnalytica clients around the world with early warning indicators of upcoming turmoil and hedges against downside risks,” said David Merrill, ceo, FinAnalytica.
FinAnalytica President, Boryana Racheva-Iotova continued, “These patents inspire our entire team to achieve even further innovation, especially in this post-crisis period when market players are just beginning to focus on dealing with fat-tails.”
