All things excellent are as difficult as they are rareBaruch Spinoza
Planning and marketing any sustainable investment product presupposes a reliable technology at its foundation. But as several surveys have shown, software quality is often overlooked in the financial services industry.
Software: a very error-prone business
Building any software-based solution is a very error-prone work. Professional programmers on average make as many as 100 to 150 errors per 1,000 lines of code. This is according to a multi-year study of 13,000 programs by Watts S. Humphrey of Carnegie Mellon University’s Software Engineering Institute. This explains why close to 90% of all software-based endeavors fail to fully attain their objectives.
Getting it right yields productivity and the peace of mind
When we first built I-System’s prototype in 1999, we were well aware that there could be surprises in the model’s code, that maintaining it could turn out more involved than building it in the first place, and that our plans could easily be dashed if anything went wrong.
Building the I-System the right way meant investing a great deal more work, time and money. However, this effort was well worth it: our reward has not only been the system’s low maintenance productivity, but also the confidence and peace of mind we have enjoyed in using it over the years.
Eliminating model risk: best practices + three different versions
In addition to scrupulously adhering to best practices in software engineering, we went as far as building three separate versions of the model and running them in parallel for several months to ensure that they produced identical results. Only then could we be sure that we didn’t have significant conceptual or coding errors hidden in the model. As a result we created a piece of software that’s proven supremely stable, reliable and versatile.
Quality: I-System is reliable
We built I-System’s ‘industrial strength’ version in 2003 and have not altered its core algorithms ever since. Today, after nearly two decades of continuous use with no interruptions, maintenance issues or code tinkering, we are entirely confident that I-System is effectively model-risk proof.
I-System can implement and track a large number of trading strategies in each market, enabling a uniquely incremental approach to managing market exposure as the following chart illustrates:
In the top chart, we see the price of the 30-year U.S. Treasury Bond (left axis) overlaid with market exposure as a percentage of full position limit, determined by 18 individual I-System strategies (right axis). Stronger trends warrant heavier exposure, but as momentum weakens, we gradually reduce risk in accordance with specific signals generated by our strategies.
I-System is a solid foundation for technology-based investment solutions
I-System’s quality represents a solid foundation for a wide variety of sustainable solutions in trading, investment management and hedging.
In addition to being able to track multple strategies in any market security, it can also support a virtually unlimited number of investment portfolios covering hundreds of market trading instruments.
Furthermore, as our experience and audited track record show, we have every confidence that such solutions will also prove effective in terms of their performance.