Forward Curve Management...Why the Complexity?

Richard Quigley
CEO, DataGenic Ltd.

Of all the issues and requirements that I come across in the industry, the winner by a country mile is forward curve management. This functional area concerns both buy and sell side organisations and is not restricted to a particular sector. Quite simply, if you are engaged in market trading activities that facilitate you buying, or selling forward, goods/services (physical or financial) the importance of forward curves is paramount for mark-to-market, risk exposure, key inputs for derivative pricing models, identification of future arbitrage opportunities and trader evaluation strategies.

What is difficult about forward curve management?

The calculation of a forward curve is not necessarily difficult in isolation. Any skilled Excel or VBA Excel user can take data and create some conditional expressions to form the calculation. However, the difficulty is accentuated when you have many different products (asset classes) that have different time horizons, different rollover and holiday calendars, different data integrity checks or different liquidity to name a few.

Some further factors that may compound the difficulties and complexities of forward curve construction and management for organisations are:

• Forward curve methodology must adhere to compliance regulations - If you are a public listed company in the US or Europe, there is a regulatory requirement to ensure that any profit/loss forecasts use a robust, transparent and auditable methodology, which will require the forward curve for one of the key inputs.


• Mitigate key-man risk - Many companies (large and small) still rely on 1 or 2 individuals to provide the forward curves to the Risk and Reporting System. Staff attrition, absence, etc., tend to upset the daily routine and reliability of the numbers.


• Lack of any universal forward curve construction standards – Ask any two companies what their forward curve methodology is, for let’s say, a traded energy commodity, and you will get two different answers. Both can equally be correct as there is no defined right or wrong – just sensible, methodical and defined practice.


• Forward Curve complexity – The characteristics of each market such as liquidity, volatility, market price sources or seasonality are different, and they require different modelling/calculation techniques.


• Curve storage & views – A forward curve is no longer a time series and requires to be treated differently in a database environment to ensure that multiple curve views are available to the user. They may include Dated, Label, Tenor Point History, 3D History Surface.

It would be fair to say that most companies, big and small, struggle each day with forward curves, usually in an Excel environment, which comes with its own issues. We, at DataGenic, thought it was time to move away from Excel into a more stable, transparent, easy to use, auditable, easy to maintain application that can cope with any curve thrown at it!

Visit our website for further details on Genic CurveBuilder – it almost makes coffee for you in the morning!

datagenicgroup.com/our-products/genic-curvebuilder/features

2010: Forward Curves and beyond

Richard Quigley
CEO, DataGenic Ltd.

A very happy new year to all our clients, partners and friends.

With 2009 now behind us and some embryonic optimism emanating from the media and global markets, this New Year has the potential to offer a more stable platform for business growth, than business consolidation in 2009 (for some). This was very evident in Q409 (traditional next year’s capex and opex budget setting time), with a notable number of clients with RFI/RFP’s for ETRM and data management solutions, with implementation starting Q1 and Q2 2010.

It is heartening for me to note that at least some organisations are placing value on data rather than treating it as an afterthought to the gilt-edged ETRM system. It is still not uncommon in the market to find organisations with multi-million pound - all singing and dancing - ETRM systems in place and yet are feeding this beast with an excel spreadsheet put together by a junior member of staff.

Fit for purpose software

Over the last 12 months, armed with the knowledge of the market requirements from our clients, our team has been working tirelessly to ensure our commitment through the release of Genic DataManager (GDM) 3.0 and two other major new optional module releases: Genic WorkFlow and Genic CurveBuilder.

As software releases go, GDM 3.0 is a major release for us, with a completely re-written front end in .NET, huge improvements in usability, as well as a host of new features. They include OLAP reporting, artificial intelligence, matrix management, scheduling, advanced formula editor, over 200 new formulas, reference data versioning, and many many more.

Genic WorkFlow has been used by our operations team for nearly a year, and we decided the software was road tested enough to provide to our clients. With visual processing mapping, workflow versioning, extensive auditing, full traceability and a host of other features, this latest optional module to GDM has been welcomed by our clients.

Genic CurveBuilder is certainly the most eagerly awaited of the 3 releases, offering a massive step-change over other 3rd party and client internally-built software for forward curve construction and management. Fully integrated with GDM and Genic WorkFlow, this module allows business users, with no IT experience, to build and manage complex forward curves. Furthermore, it offers deep audit logging, versioning and even a test area before you publish to the production application. This really is world-class designed software and I’m sure a demo of this application will prove what a world beater it is.

In November 2009, DataGenic won the prestigious Gold Award for Excellence in Energy Trading and Risk Management, which was a huge boost to the team’s effort over the past year. We will continue to develop innovative products, continuously listen to our clients and improve our support services in 2010. Our clients don’t stand still and neither do we.