ERCIM News No.38 - July 1999

Numerical Algorithms Group

by David Sayers

Numerical Algorithms Group Ltd (NAGTM), a not-for-profit software house, is the UK’s leading producer and supplier of mathematical computer software for business, education and industry. A key focus and growth area is the complex world of finance. Here, according to NAG technical consultant David Sayers, the role that his company’s technology could play in delivering competitive advantage is tantalisingly ripe for discovery.

NAG was founded in an academic research environment. It was created in 1970 by numerical analysts co-ordinated from the University of Nottingham, moved to Oxford in 1973, then expanded to become an international group. Today NAG continues to be driven by a network of research professionals from around the world. Its successes to date have always depended on integrating this world effectively with that of the ‘real’ world as experienced by the end users of its technology. Nag is committed to secure future successes by adopting the same approach. For example, there is little point forging ahead with research to heighten accuracy, when customers have a more pressing need for speed of delivery. NAG has recently launched a proactive initiative to investigate the financial customer base in more detail, to direct its research network to deal more closely with the real life problems financial analysts have to solve today....and tomorrow.

NAG’s numerical libraries are already used extensively in financial institutions around the world, here NAG is prized for the high quality, reliability and speed of its software, scope (in terms of the range of solutions available) and attentive level of technical support. The customer base is wide ranging, some users work on the smallest PC while others manage the most modern supercomputers; they use a variety of computing languages. A key requirement these institutions have in common is the need to use NAG routines to develop unique in-house trading and pricing strategies, something that is not possible with off-the-shelf complete packages.

For those with particularly complex financial challenges, NAG also offers a consultancy service. Recent work, for example, involved a sophisticated portfolio tracking program and the provision of a bespoke module for trading in global currency and bond markets.

The same NAG mathematical consultants are constantly considering general trends in the marketplace to direct software development.

Key trends already identified include interest in the single European currency. NAG has already predicted a refinement in investment strategies based on a much larger global portfolio of shares than at present in Europe. The indices will now cross the European spectrum of shares not just those quoted on the local exchanges. Problem sizes will be larger, leading to a greater demand for more powerful routines capable of solving larger problems. Here NAG’s multi-processor libraries (SMP and Parallel libraries) are the ideal solution.

Another interesting development under scrutiny is the inclusion of transaction costs in portfolio modelling. This leads to the minimisation of numerically difficult discontinuous functions. Accordingly, major software systems will need to rely on NAG’s expertise and quality to solve complex problems.

Derivatives are also becoming more complex – with simple option pricing giving way to the more complicated problem of pricing exotic derivatives. Black-Scholes models are now starting to give way to more sophisticated models.

As European markets change, so will the regulatory bodies and surrounding legislation. Dealers will need to know how their books stand at the end of the day, to meet both the regulatory requirements and the ‘risk of exposure’ requirements of their own managers. With NAG’s flexible solvers, the adaptation to changing circumstances is made possible. NAG is also already anticipating new breeds of programmers graduating from universities. These people are moving away from the traditional library approach to problem solving. They will need either more sophisticated components or solution modules that interface to ‘packages’ or ‘problem solving environments’. Users will have ever increasing amounts of data to analyse and assess. This will require good visualisation capabilities and a system capable of performing meaningful and powerful statistical analysis of that data.

Looking ahead, NAG is committed to meeting financial analysts’ need for speedier, accurate solutions by enhancing the numerical libraries that have already gained a considerable following in this community. The company will also deliver the security and flexibility these customers require. As architectures change, so the libraries will change to fully exploit new features and to embrace the increasing need for thread-safety. At the same time, NAG will enhance the libraries with newer and more powerful solvers, keeping pace with the rapid advances in numerical techniques. In addition, further work will focus on presenting NAG’s numerical techniques in new ways, ensuring the power of this technology can be accessed by news types of user.

NAG also anticipates a surge in awareness of the competitive advantage of using visualisation packages, again a key area for the new types of user. NAG’s own package, IRIS Explorer(tm) can be combined with the reliable engines of the company’s libraries to form a bespoke computational and visualisation program. This is a vital development in the financial world where, for example, dealers are under pressure to absorb the results of a calculation at a glance. Numbers are not sufficient. NAG is set to develop more visualisation modules to meet the expected demand for increasingly more powerful tools in this area.

Further focus areas and challenges will doubtless emerge. NAG anticipates with relish that the rate of change and pace of software development will be phenomenal. For more information on NAG, see

Please contact:

David Sayers - NAG Ltd
Tel: +44 186 551 1245

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