Principles of Quantitative Development / Edition 1

by Manoj Thulasidas

Overview

Principles of Quantitative Development is a practical guide to designing, building and deploying a trading platform. It is also a lucid and succinct exposé on the trade life cycle and the business groups involved in managing it, bringing together the big picture of how a trade flows through the systems, and the role of a quantitative professional in the organization.

The book begins by looking at the need and demand for in-house trading platforms, addressing the current trends in the industry. It then looks at the trade life cycle and its participants, from beginning to end, and then the functions within the front, middle and back office, giving the reader a full understanding and appreciation of the perspectives and needs of each function. The book then moves on to platform design, addressing all the fundamentals of platform design, system architecture, programming languages and choices. Finally, the book focuses on some of the more technical aspects of platform design and looks at traditional and new languages and approaches used in modern quantitative development.

The book is accompanied by a CD-ROM, featuring a fully working option pricing tool with source code and project building instructions, illustrating the design principles discussed, and enabling the reader to develop a mini-trading platform.

The book is also accompanied by a website http://pqd.thulasidas.com that contains updates and companion materials.

Product Details

ISBN-13:	9780470745700
Publisher:	Wiley
Publication date:	08/09/2010
Series:	The Wiley Finance Series , #513
Pages:	252
Product dimensions:	6.00(w) x 9.00(h) x 1.10(d)

About the Author

A physicist-turned-quant, Dr. Manoj Thulasidas works as a senior quantitative professional at Standard Chartered Bank in Singapore, focusing on the design and deployment of trading systems. Well recognized in his field, the author is a regular columnist for Wilmott Magazine, and has published several articles on a variety of topics related to quants and quantitative finance.
Thulasidas received his undergraduate degree from IIT, Madras in 1987. A physics aficionado, he then studied fundamental particles and interactions at the CLEO collaboration at Cornell University during 1988-93. After receiving his Ph.D from Syracuse University, he continued his work at the ALEPH collaboration at CERN, Geneva. During his 10-year career as a research scientist in the field of high energy physics, he co-authored over 190 publications.
In 2005, the author switched to quantitative finance, and joined OCBC, a regional bank in Singapore. He led the quantitative analytics team for pricing model validation and other mathematical tasks. This middle office job, involving risk management and curtailing ebullient traders, gave him a thorough overview of pricing models and, perhaps more importantly, a perfect understanding of the conflict-driven implementation of the risk appetite of the bank. Later on, he moved to Standard Chartered Bank, taking care of their in-house trading platforms, which further enhanced his "big picture" outlook and inspired him to write Principles of Quantitative Development.

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Table of Contents

List of Figures, Tables and Big Pictures xi

Preface xv

1 Introduction 1

1.1 What is a trading platform? 1

1.1.1 Model archival 1

1.1.2 Incremental deployability 2

1.1.3 Live data feeds 2

1.1.4 Trade persistence 2

1.1.5 Regular processing 3

1.2 Quants and quantitative developers 3

1.3 Need for speed 4

1.4 Implementation options 5

1.4.1 Outsource to vendor 5

1.4.2 Use vendor API 5

1.4.3 Develop in-house 6

1.4.4 Replace vended systems 7

1.5 Current trends 7

1.6 Technical and business aspects of platform design 8

1.7 Importance of processes 10

1.8 Objectives and organization 12

Quiz 13

2 Overview of Banking 15

2.1 The offices 16

2.2 Front office 16

2.2.1 Economists 18

2.2.2 Structurers 18

2.2.3 Sales 18

2.2.4 Trading desks 19

2.2.5 Desk quants 19

2.2.6 Platform or quantitative developers 19

2.2.7 Desk risk management 20

2.3 Middle office 20

2.3.1 Product control 20

2.3.2 Treasury control unit 22

2.3.3 Market risk management 23

2.3.4 Credit risk management 23

2.3.5 Operational risk management 24

2.3.6 Rates management 26

2.3.7 Static data management 26

2.3.8 Compliance and reporting 27

2.3.9 Market risk management analytics 27

2.3.10 Asset and liability management 27

2.4 Back Office 29

2.5 Supporting units 29

2.6 Summary 30

Quiz 31

3 Trade Life Cycle 33

3.1 Pre-trade activities 34

3.2 Inception 35

3.3 Validation 38

3.4 Regular processing 40

3.5 Life-cycle events 43

3.6 Termination and settlement 45

3.7 Post-trade Activities 47

3.8 Summary 47

Quiz 48

4 Trade Perspectives 49

4.1 Trade-centric view 49

4.2 Model-centric view 51

4.3 Product-centric view 53

4.4 Asset-class view 54

4.5 Queues and status flags 55

4.6 Aggregate views 57

4.7 Bottom-line view 60

4.8 Other perspectives 61

4.9 Summary 62

Quiz 63

5 Programming Languages - Basics and Choices 65

5.1 Language choice 66

5.2 Basics of computing 67

5.2.1 Development cycle 67

5.2.2 Dependencies and Makefiles 69

5.2.3 Lexical structure of a programming language 70

5 3 Object-oriented languages 75

5.3.1 Basics of object-oriented methodology 75

5.3.2 Advantages and disadvantages of the object-oriented approach 78

5.4 Functional programming 79

5.5 Summary 84

Quiz 85

6 Trading Platform Design 87

6.1 General design considerations 87

6.1.1 Maintainability and documentation 88

6.1.2 Scalability and extensibility 89

6.1.3 Security and access control 90

6.2 Architecture components 91

6.2.1 Trade representation 92

6.2.2 Market representation 94

6.2.3 Static data management 97

6.2.4 Quant library 97

6.2.5 Trade transformations and operations 98

6.2.6 Settlement triggers or pathways 100

6.2.7 Batch processing and grid computing 102

6.2.8 Credit replication 106

6.2.9 Security and audit model 107

6.2.10 Documentation and support model 110

6.3 Example architecture 111

6.4 Advanced architecture 113

6.5 Summary 117

Quiz 117

7 Computing Patterns for Trading 119

7.1 Façade pattern 121

7.2 Visitor pattern 123

7.3 Singleton pattern 129

7.4 Factory patterns 131

7.5 Component object model 133

7.6 Summary 134

Quiz 135

8 Flexible Derivatives Pricing Tool 137

8.1 Design scope 137

8.2 Design goals and features 138

8.2.1 Pricing tool features 138

8.2.2 Data types support 140

8.3 User interface 141

8.3.1 Main control interface 143

8.3.2 Create/edit product 145

8.3.3 Create/edit model 146

8.3.4 Generating a function template 147

8.3.5 Complex parameter visualization 150

8.3.6 Pricing interlace 154

8.3.7 Visualization interface 156

8.3.8 Finite difference engine 159

8.4 Summary 161

Quiz 163

9 Pricing Tool to Trading Platform 165

9.1 Pricing tool: internals 165

9.1.1 Common quant classes 167

9.1.2 Main interfaces 170

9.1.3 Pluggable pricing models 176

9.1.4 Reusable components 177

9.1.5 Source code documentation 179

9.1.6 External packages 179

9.2 Future enhancements 180

9.2.1 Trade database 180

9.2.2 Market data 181

9.2.3 Life-cycle management 190

9.2.4 Security and access control 190

9.2.5 Batch process 191

9.3 Summary 191

Quiz 191

10 Summing Up 193

10.1 Epilogue 193

10.2 Further reading 195

10.2.1 Quantitative finance 195

10.2.2 Computing 199

10.2.3 Economics 201

Appendix 203

A.1 CD Contents 203

A.2 Historical perspective 204

Glossary of Terms 213

Index 227