QUICK FACTS
PV-WAVE allows hedge fund Global Advisors to develop algorithms that generate trading signals for commodity markets.

THE PROBLEM
Global Advisors is a hedge fund offering clients investment management in commodity markets, using a combination of discretionary and quantitative modeling approaches. Global Advisors specializes in two commodity complexes: energy and metals, although it also trades in agricultural markets. The company’s aim is to provide good risk-adjusted returns to its investors through first hand experience and insight into how key market participants (such as: commodities producers, consumers, speculators and institutional risk managers) impact the trading equation.

When Global Advisors first launched in 1999, the energy and metals markets were less algorithmic, relying on simple models built in environments such as Visual Basic to analyze market data and deliver trade recommendations to the company’s discretionary portfolio managers. In addition, these old systems were fairly rigid, which meant if market conditions changed they did not easily adapt and therefore could have produced sub-optimal recommendations to traders.

"A system trained in 1987-1989, for example would have been killed in August 1990 when, after the Iraqi invasion of Kuwait, oil prices not only spiked but remained high and volatile for around six months", explained Rus Newton, Director of Research for Global Advisors. "We therefore aim to develop our systems to be fully adaptive. Visualizations from PV-WAVE allowed us to test that adaptability."

THE SOLUTION
Visual Numerics' PV-WAVE was first introduced to Global Advisors in 2001, when a new quantitative researcher joined the firm. At its core, PV-WAVE is an array based programming language used to build and deploy visual data analysis applications. As markets became increasingly volatile and portfolio managers relied on the accuracy and visibility of trading data, researchers at Global Advisors integrated PV-WAVE into their work processes as it allowed the team to import, manipulate, analyze and visualize data of any size and complexity – with variables ranging from metals prices to crude oil inventories to temperatures.

With the help of PV-WAVE and Visual Numerics’ Consulting Services, the research team developed an application that proved crucial to Global Advisors. The trading signals engine covers 40-50 commodities and utilizes both linear and non-linear optimization, which helps identify patterns and opportunities for trading. It not only delivers robust forecasting across a wide variety of market types, but also allows Global Advisors to identify possible limitations in their financial models that they would not normally see.

Global Advisors can use PV-WAVE to test the robustness of a model by viewing the model performance in two different time windows. For example, Contour Map 1 and Contour Map 2 represent annual return for commodity (LME Zinc) in two time windows. Color represents annual return.

Contour Map 1: Illustrates annual return over one time period.	Contour Map 2: Illustrates annual return over second time period.

For another perspective, Global Advisors can view Shaded Contour Map 1 and Shaded Contour Map 2 in order to further test the stability of their model. Once more, comparing it in two time windows:

Shaded Contour Map 1: Illustrates annual return over one time period.	Shaded Contour Map 2: Illustrates annual return over second time period.

RETURN ON INVESTMENT
Over the course of 2006, Global Advisors re-evaluated PV-WAVE and spoke with a number of other vendors about re-developing in-house applications in languages, such as C or C++. Having reviewed the situation, Rus Newton and his team decided to stay with PV-WAVE while enhancing existing applications to improve performance, rather than opting for a new solution. The latter would have meant spending an extensive period of time re-developing applications, diverting focus away from the firm’s core business.

"We have been very successful using PV-WAVE and have seen substantial improvements in performance," Newton pointed out. In fact, with the help of Visual Numerics' consulting team, computation time for Global Advisors' main quantitative trading system has been cut from three hours to a few minutes. This allows Global Advisors to add more sophisticated algorithms to refine results even more and still deliver them to the traders in a timely manner. Close collaboration with the same consulting team is allowing Global Advisors to bring new quantitative models into production much more quickly than would have been the case with a lower-level language such as C.

Global Advisors has always worked very closely with the team at Visual Numerics. For example, Visual Numerics consultants optimized the application for use on a sixteen CPU machine running Linux. They also streamlined the application by collapsing hundreds of files into a tighter algorithm. Rus Newton commented: "I think the team we worked with at Visual Numerics has been very smart and helpful. They are very pleasant to work with and the caliber of qualified software engineers has been very good indeed."

Combining Global Advisors' expertise in financial algorithm development with Visual Numerics' expertise in computational science means Global Advisors is now able to provide their clients with significantly enhanced quantitative products.

WORLD CLASS PRODUCTS, SERVICES, AND SUPPORT
Visual Numerics has provided technical software solutions for numerical analysis and visualization for over 30 years. The company's software products help users understand complex data from a variety of sources and build business-critical applications. Visual Numerics offers two product lines: the IMSL® Numerical Libraries for powerful mathematical and statistical analysis and the PV-WAVE® visual data analysis development environment. Visual Numerics also offers customized consulting services for applications that involve mathematical, statistical, or visual data analysis to meet today’s business analytical needs.