There are two key reasons why it is critical to validate the yield curve framework in any front office pricing system thoroughly and in a way that is easily repeatable:
- 1 – The yield curve framework is one of the most important components in any front office pricing system as it has widespread valuation impacts and is a fundamental building block in most other models within the system, and
- 2 – When carrying out upgrades, patches or migrations one of the most common causes of reconciliation issues between environments is yield curve differences, that need to be resolved or explained.
A good validation of a yield curve framework provides the user with comfort that it is fit for purpose and that the curves are being computed correctly. It also promotes understanding of the curve build methodology and thereby makes it easier to locate and explain differences between yield curves in different environments. An ideal validation would contain elements that can be easily re-run (even on different environments if required) to ensure that the framework is still functioning correctly and facilitate comparison of results between runs.
At QuantSOS, we specialise in Murex validations. We have leveraged the repeated validations of the Murex yield curve framework that we have been involved in to streamline and automate our processes for conducting such a validation. We can efficiently extract relevant information from Murex, pass that information into our independent curve building implementation in C#/C++ and then compare results between our independent implementation and Murex. For an initial Murex yield curve framework validation, this is a key part of a comprehensive suite of testing that we would recommend should be undertaken and for which we offer cost-effective fixed price solutions. For a reconciliation exercise between two environments we offer another solution where the automated component of the testing is run on both environments to verify that the curve build is functioning correctly on both and quickly identify where and why there are differences between the curves in the two environments. This solution, as it primarily involves automated components and hence can be performed very efficiently, is also offered on a cost-effective fixed price basis.