Magazine article American Banker

Developer of Option Pricing Tool Glad He Opted out of BT in '89

Magazine article American Banker

Developer of Option Pricing Tool Glad He Opted out of BT in '89

Article excerpt

When Richard Tanenbaum decided in 1989 to leave Bankers Trust New York Corp. to develop an option pricing model for money managers, the money- center was going through fundamental change.

Turf wars about who received credit for deals, combined with concerns over management decisions about derivatives products, led him to take the leap into software development.

"It was the beginning of the big cultural shift that has helped put the company in the papers so much over the past year," said Mr. Tanenbaum, who spent eight years with Bankers Trust.

"I was able to see the changes over time, and from my perspective, they were not changes for the better," he said.

So Mr. Tanenbaum, who began his career in Bankers Trust's money management area and later headed derivative products research, left to develop the Tanenbaum Option Pricing Software, or TOPS.

Savvysoft, a Princeton, N.J., firm in which Mr. Tanenbaum is a partner, has just released the product - one of the first to allow everyone from dealers to end users to value and measure the risk of their derivatives positions.

And for financial institutions involved in this complex and sometimes hazardous market, possessing this kind of vital information can mean the difference between hedging risks successfully and taking a highly publicized loss.

"You can look at something like what happened at Procter & Gamble, Gibson Greetings, or Orange County (Calif.), where they didn't know what they had," he said.

"This system allows the end users of derivatives, the dealers and risk managers, to evaluate all types of exotic derivatives and measure the risk of these products as well."

The product was designed specifically to value some of the more esoteric options available, such as barrier or knock-out options -where the option disappears once a specified event occurs - and Asian options, which are based on the average relative exchange rate between two currencies over a period of time. …

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