From Wired This Day In Tech: May 17, 1970 Thor Heyerdahl sets sail aboard Ra II to cross the Atlantic Ocean in a boat built of reeds and succeed where the previous expedition (aboard Ra I) failed.
(Heyerdal gained worldwide fame when he crossed the Pacific Ocean on Kon-Tiki - a boat constructed of woods).
One purpose of the Ra II voyage was to demonstrate the seaworthiness of buoyant reeds.
When pricing derivatives, we need to ride the price waves by calibrating our pricing models - frequently. And often the models are like vessels made of reeds.
If the sea of the price dynamic is smooth they glide and follow the waves (not fast but ..), when the sea becomes restless they might get in danger to bump, when the sea went more stormy their flexibility may help to show surprising robustness following the up and down of the waves, but when the sea froths over they sink.
We can say the pricing regime switches and a powerful pricing engine shall have regime switching capabilities. This requires model scenarios embedded into the risk-factor scenarios by frequent calibration and re-calibration. Millions of valuations need to be performed in short time.
Consequently, to riding the price waves needs the most sophisticated algorithms, calibration techniques and enormous computing muscles.
Wolfram, NVIDIA and UnRisk will present new technologies managing such regime switches.
