Exchange-traded financial productslike stocks, treasuries, and currencieshave had the benefit of a tremendous wave of technological innovation in the past 20 years, resulting in more efficient markets, lower transaction costs, and greater transparency to investors.

However, large parts of the capital markets have been left behind. Valuation of instruments composing the massive $500 trillion market in over-the-counter (OTC) derivativessuch as interest rate swaps, credit default swaps, and structured productslack the same degree of immediate clarity that is enjoyed by their more straightforward siblings.

In times of increased volatility, traders and their managers need to know the impacts of market conditions on a given instrument as the day unfolds to be able to take appropriate action. Reports reflecting the conditions at the previous close of business are only valuable in calm markets and even then, firms with access to fast valuation and risk sensitivity calculations have a substantial edge in the marketplace.

Unlike exchange-traded instruments, where values can be observed each time the instrument trades, values for OTC derivatives need to be computed using complex financial models. The conventional means of accomplishing this is through traditional Monte Carloa simple but computationally expensive probabilistic sweep through a range of scenarios and resultant outcomes- or finite-difference analysis.

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