Brighton, Mass.-based Unica Technologies Inc., creator of the Pattern Recognition Workbench and Run-Time (PRW) financial research and application development environment, has entered into a partnership agreement with Advanced Design Technologies International Inc. (ADTI), Hess Consulting Inc. and Market Data Services Inc. (MDS) to jointly market and develop their products. The group intends to leverage off the complementary strengths of its members to provide investment managers and other market participants with a comprehensive and integrated set of advanced, data-driven financial modeling and rapid application development tools.
"As a small company with limited resources, a good chunk of our effort goes into product development. By teaming up with people who have the domain knowledge in specific areas of the financial markets and working together on a common set of technology, we all benefit by our ability to offer clients comprehensive, well-tested systems solutions," says Yuchun Lee, a Unica consultant engineer and one of its founders.
It was PRW's strength as a research and application development environment and Lee's conception of a collaborative business strategy that drew the four partners together. Unica was formed in 1992 by a group of six Massachusetts Institute of Technology grads who had been employed with Digital Equipment Corp.'s machine learning consulting services group. It released PRW late last year (Derivatives Engineering & Technology, Jan. 23).
Drawing its conceptual framework from fields such as information theory and artificial intelligence, and using empirical numerical techniques to carry them out, data-driven modeling and pattern recognition software is increasingly being used in the markets to identify and quantify relationships between variables in complex, non-linear systems such as the currency, fixed-income and equity markets, according to Lee.
Implementing complex and data-intensive methodologies based on research in neural networks, artificial intelligence and other data-driven methods has recently become feasible for financial markets participants, according to Lee. Methods that were considered impossible or uneconomic to practically implement five years ago are now being considered and developed across the spectrum of financial market participants. The potential of developing comparative advantages in their business lines by using these methods is also contributing to their allure, he adds.
While the partners have thus far focused on developing the interoperability of their software, they are co-marketing each other's products and services through their respective independent consultancies and they plan to develop and release general purpose applications and systems into the market, possibly as soon as the end of the year, according to group officials.
PRW's core set of data-driven pattern recognition algorithms consists of traditional statistical methods, such as linear and logistic regression; non-parametric methods, such as k-nearest neighbor and a Gaussian mixture model; and neural network models, such as MLP (Multi-Layer Percepton).
A data spreadsheet designed specifically for manipulating data series--each spreadsheet can accommodate 16,000 columns and 16 million rows of data--serves as the user's central interface to PRW. The system currently runs on Microsoft Corp.'s Windows NT, Windows 3.1 and Windows 95 PC operating systems, as well as Sun Microsystems Inc.'s SunOS and Solaris Unix variants. IBM's AIX and Hewlett-Packard Co.'s HP-UX systems are also supported.
Providing users with a broad range of algorithms distinguishes PRW from similar, competing products, says Paul Hess, founder of Hess Consulting.
"One of the reasons I'm excited about teaming up with Unica is the fact that PRW is an extremely good environment within which to work with data series. You can very quickly pull in data and have PRW perform five or ten different analyses with different algorithms in the background while you're working on developing a custom analysis through their macro language," Hess says. "To use individual products for such purposes would entail much greater development times and costs," he says.
Having co-founded the Abtech Corp. and worked as a government contractor and industry consultant to develop artificial intelligence systems, Hess formed Hess Consulting in 1991 and moved it into the financial sector in 1993.
The company specializes in providing educational support, training and consulting for users of artificial intelligence and pattern recognition tools. Having been introduced to PRW through Hess, one money management client, whose name Hess declines to divulge, is currently using PRW to develop an asset allocation model that it will use to trade equities.
Linking PRW with database and real-time and historical market data sources is another priority for the group. Both ADTI and MDS have experience in this area: ADTI in working with relational database management systems such as Sybase Inc. and Oracle Corp., and MDS with the Fame Information Services Inc. matrix-based time-series database and Illustra Information Technologies Inc.'s object-oriented database management system.
Ossining, New York-based MDS specializes in helping clients specify and implement "cost-effective and technically efficient" market data price management systems, according to Dr. Henry Green, one of its founders.
With over fifty European financial industry clients, MDS has extensive experience in integrating application systems with digital market data sources, such as Reuters' Triarch 2000 and Teknekron Software Systems Inc.'s Teknekron Information Bus.
As a value-added reseller for both the Fame and Illustra database management systems, MDS also offers a number of fixed price, modular system components that provide subscription and collection of market price data that can then be directed into a database. "We're offering complete back-end support to supply the clean, standardized data sets at user-specified frequencies in order to drive analytic developments on the front-end via PRW," explains Green.
The company is working with Zurich-based Olsen & Associates to integrate its foreign exchange tick data within the PRW environment, and is also working with Chicago-based Futuresource, a division of Oster Communications Inc., to do the same, Green adds.
ADTI, a systems consultancy formed in 1984, is similarly concentrating on enhancing PRW's database accessibility, while also developing value-added PRW-developed front-end analytical tools, according to John Scacchia, the company's president.
The company is focusing on interfacing PRW with SQL-based relational database management systems, such as those offered by Microsoft Corp., Sybase and Oracle, other statistical analysis packages, such as SAS, and developing value-added functional libraries that can be bundled into PRW, Scacchia says.
ADTI is also about to enter the investment management field in its own right. It has used PRW, in concert with internally-developed software, to develop a proprietary working capital management system and to develop some of its own pattern-recognition trading models. It is currently in the final stages of back-testing its fundamentally-based trading systems and plans to begin investing the seed capital it has obtained from a group of private investors shortly, says Scacchia.
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