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Research: Lehman floats new Raft trading model

Model can help to attract new investors to asset class.

Lehman Brothers has unveiled what it describes as a new approach for trading risk aversion through major currencies. It says its Risk Appetite Factor Trading (Raft) model shifts the focus away from fundamental links between capital markets and currencies, and toward the issue of investor risk attitudes. It adds that the model tracks shifts in risk attitudes and trades those against a basket of currencies.

Jim McCormick, Lehman’s global head of FX research, is expressing genuine enthusiasm about the new model to anyone who will listen. He says that Lehman has long tried to send a message that research has to be a combination of a quantitative and more macro-based approach.

“We’ve spent a lot of time and effort to ensure the quality of our quantitative research product. Raft is our quantitative system for measuring global risk conditions and translating that into FX trading signals,” says McCormick.

“Unlike similar risk models, Raft provides a far more dynamic, flexible process for trading risk conditions by using information from the various inputs, rather than a single risk measure. The good news is that the returns have exceeded more traditional risk-trading processes,” he adds.

McCormick believes that Raft can play a role in attracting new investors to FX, primarily by soothing some of their fears about what they regard as an arcane asset class.

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