Abstract
The valuation of complex financial instruments that ap pear in the banking and insurance industries requires simulations of their cashflow behavior in a volatile in terest rate environment. These simulations are complex and computationally intensive. Their use, thus far, has been limited to intra-day analysis and planning. Re searchers at the Wharton School and Thinking Machines Corporation have developed model formulations for massively parallel architectures, like the Connection Ma chine CM-2. A library of financial modeling primitives has been designed and used to implement a model for the valuation of mortgage-backed securities. Analyzing a portfolio of these securities—which would require 2 days on a large mainframe—is carried out in 1 hour on a CM-2a. The valuation of a single security is carried out in real time (1-2 sec). It has been possible to design an interactive system that carries out sensitivity analysis, compares securities, or changes the assumptions of the model, and display the result under direct control from an analyst.
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