Barra Targets Derivs Users With Two New Systems--One Ready, The Other In Beta

Barra Inc. has released a new exotic options software package, called Barra/Rubinstein Exotics, based on Microsoft Corp.'s Excel spreadsheet technology. The product covers Black-Scholes and Cox-Ross-Rubinstein option models, average-rate options, compound options, lookback options, barrier options and rainbow options. In addition, beta tests of Barra's Cosmos, a new Microsoft Windows-based fixed-income risk management product with some derivatives functionality, are set to begin this month. Cosmos is being pitched at fixed-income traders and portfolio managers, but it also contains pricing modules for a variety of derivatives such as bond futures, options on bond futures, currency forwards and options.

These releases form part of a larger strategy for Barra to move into the derivatives market, says Brent Bullard, Barra's product manager for derivative strategies. Traditionally, the vendor's strengths have been in portfolio analytics. However, the past 18 months have seen an effort by Barra to include derivatives functionality across its various products, says Bullard.

Bullard says that the Barra/Rubinstein Exotics software is a new product, not an upgrade to any existing software. The exotics product has been in development for almost two and a half years, he says. The Barra/Rubinstein Exotics software is based on options theorist Mark Rubinstein's algorithms, says Bullard. There are over 30 models in the software and each type of exotic has a separate spreadsheet, he says.

Bullard claims there have been "quite a few inquiries" about Barra/Rubinstein Exotics, which was launched last month. "We have been sending out demo diskettes which allow you to do just 25 calculations before expiring, just to give the flavor of the product," he says.

At press time, Barra had sold one copy of the product in its Australia region. Bullard declines to name the client involved. The vendor conducted a six-month internal beta test "not with any of our clients" earlier this year, he says.

Bullard describes the new Barra product as being something more than just a spreadsheet add-on. "It's officially not an add-on because we're not using the add-on features of Excel. We're doing a direct call to our dynamic link library. The concept at Barra is to provide people with the calculators for exotic options that they can use through Excel," he says.

The Barra/Rubinstein Exotics product is somewhat of a departure for Barra since it does not rely on Barra-supplied market data. Users supply their own information to the Barra/Rubinstein product, says Bullard.

Another feature that sets it apart from other Barra products is in how it is sold. "It's the only product that is a one-time sale, a perpetual license," he says. "All of the other Barra products are licensed one year at a time. So once this is purchased, it is the customer's property."

Pricing for future upgrades of the product will depend on "the capabilities and the complexity of the new additional models," says Bullard. For now, the price for a perpetual license on the exotic option suite of models is $10,000 for a single user at a single site. This does not include service or support of the models. Support can be added per year at 20 percent of the initial price.

Separately, the vendor expects to launch its Cosmos product in the first quarter of 1996, according to Rick Robinson, Barra's fixed-income sales consultant and Roveen Bhansali, senior product manager for Cosmos. Cosmos is in beta now, but both Robinson and Bhansali decline to name the beta sites.

Although it is not being marketed as an upgrade, Cosmos was designed to incorporate and exceed the functionality of a prior Barra product, the DOS-based Globo, say Robinson and Bhansali. Globo is a risk management product for global money managers.

Cosmos covers 21 local market term structures and 26 base currencies. Other features include access to the J.P. Morgan Government Bond Index, the Salomon World Government Bond Index and other market indices, says Robinson.

The system's instrument coverage includes government bonds, eurobonds, bond futures, options on bond futures, currency forwards and currency futures. "The idea is to do an integrated analysis of a portfolio with all the different asset classes, applying a consistent framework or a methodology to all the asset classes," says Bhansali. The Globo product could handle currency forwards, but it could not accommodate options and it lacked the ability to create custom forwards, says Robinson.

A launch date for Cosmos has not been set since the vendor wants to have the product out in beta to receive market feedback before deciding on when to release it, says Bhansali. "But our target is first quarter of next year," he says.

Barra's client base has typically been focused on U.S. money management firms in the past. But Cosmos should have a broader appeal to the financial community, says Robinson, including banks, insurance companies, international funds and central banks. This assessment is based on the ease of use of Cosmos in the Windows environment, the increased functionality for derivatives, more term structures and the ability to calculate value at risk, he says.

Robinson also notes that Cosmos' rates are updated daily from the vendor's Barralink electronic data transfer service. This is another element that Barra expects will attract new customers, according to Robinson. "In the past, clients had a monthly update, and they'd say: 'How fresh is the data?' With daily updates that issue is solved. So that will increase the client base," he says. Barra expects all of its Globo users to switch to Cosmos when it is launched, he says.

Bhansali says that, in its talks with clients, Barra has discovered a need for products that value derivatives and fit into a portfolio context. "There are derivatives systems that just do derivatives. You may be able to value a derivative to look at all its Greeks and maybe decide whether you want to trade something like that or not. But there aren't any systems out there that integrate derivatives within the portfolio context," he says.

"If you're a portfolio manager with a multicurrency portfolio that has bonds in different markets, wanting to reduce or increase exposure through derivatives, Cosmos allows you to do that. So you can use it for derivatives, bonds or for integrating the two together," adds Bhansali.

Barra is releasing new products in a more-than-year-old effort to expand its analytics to encompass derivatives, says Bullard. "Many of our products are being revamped to include derivatives and derivatives strategies ... since derivatives are a major factor today. There was a realization that we need to expand our risk analytics to cover derivatives," says Bullard.

The vendor's European arm, London-based Barra International, has been active in the derivative software market for some time. Its systems include the Barra Options Trading System for European exchange-traded derivatives (Derivatives Engineering & Technology, May 30, 1994) and a Heath-Jarrow-Morton term structure model library (DE&T, May 16, 1994).