Principles of Quantitative Development

by Manoj Thulasidas

Overview

"Thulasidas has written an excellent book describing how the modern investment bank works, the individual roles played by the many types of banker and how they interact… or often don't. This is an invaluable book for bank wannabes, recruiters, journalists, those stuck in their silo, educators, regulators, politicians, for almost everyone interested in how this important part of the modern world works. I'm even going to give my mum a copy, although I don't think it will reassure her about the safety of her pension."
—Paul Wilmott, Mathematician and Quant

"If only this book had been written much earlier, many banks and financial institutions would be spared the countless heartaches, frustrations and wasted investments into poorly thought out and badly designed quantitative platforms; and its inevitable toll on the business. The book is exceedingly useful for quant professionals who want to see the forest beyond the trees but more importantly, I think it should be mandatory reading for strategic decision makers in the structured products/exotics trading spaces. Unlike the typical 'big picture' book, I find Thulasidas’ approach refreshing in that he provides tangible examples, for example in terms of competing architectures and computing patterns. This enables the reader to clearly understand and concretely grasp the consequence of each design decision as opposed to being forced to decipher fuzzy concepts. I have no doubt that this book will become a classic."
—Alvin Harvey Kam, Exotics Trader, Global Commodities Citigroup

"Dr Thulasidas opens a window into an esoteric domain in the banking world which is rarely understood and mostly misinterpreted. The subject insights he possesses help a structured style of narration navigating the reader through abstract material with ease and adding a learning touch as well. A compelling read!!!!!"
—C.Krishna Kumar, Advisor to the Chairman, National Bank of Egypt

"Dr Thulasidas clarifies the obscure and interconnected world of quantitative finance, exotics trading and financial computing. A must read for the thinking professional, this work will prove valuable to those embarking on a career in any aspect of trading - from business associates to trading system architects, and from quantitative analysts to structurers and traders."
—Babek Saber, Retired Global Head, Commodity Structured Products Trading, Standard Chartered Bank

Product Details

ISBN-13:	9780470971529
Publisher:	Wiley
Publication date:	03/13/2012
Series:	The Wiley Finance Series
Sold by:	JOHN WILEY & SONS
Format:	eBook
Pages:	256
File size:	4 MB

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.

Preface.

1 Introduction.

1.1 What is a trading platform?

1.1.1 Model archival.

1.1.2 Incremental deployability.

1.1.3 Live data feeds.

1.1.4 Trade persistence.

1.1.5 Regular processing.

1.2 Quants and quantitative developers.

1.3 Need for speed.

1.4 Implementation options.

1.4.1 Outsource to vendor.

1.4.2 Use vendor API.

1.4.3 Develop in-house.

1.4.4 Replace vended systems.

1.5 Current trends.

1.6 Technical and business aspects of platform design.

1.7 Importance of processes.

1.8 Objectives and organization.

Quiz.

2 Overview of Banking.

2.1 The offices.

2.2 Front office.

2.2.1 Economists.

2.2.2 Structurers.

2.2.3 Sales.

2.2.4 Trading desks.

2.2.5 Desk quants.

2.2.6 Platform or quantitative developers.

2.2.7 Desk risk management.

2.3 Middle office.

2.3.1 Product control.

2.3.2 Treasury control unit.

2.3.3 Market risk management.

2.3.4 Credit risk management.

2.3.5 Operational risk management.

2.3.6 Rates management.

2.3.7 Static data management.

2.3.8 Compliance and reporting.

2.3.9 Market risk management analytics.

2.3.10 Asset and liability management.

2.4 Back office.

2.5 Supporting units.

2.6 Summary.

Quiz.

3 Trade Life Cycle.

3.1 Pre-trade activities.

3.2 Inception.

3.3 Validation.

3.4 Regular processing.

3.5 Life-cycle events.

3.6 Termination and settlement.

3.7 Post-trade Activities.

3.8 Summary.

Quiz.

4 Trade Perspectives.

4.1 Trade-centric view.

4.2 Model-centric view.

4.3 Product-centric view.

4.4 Asset-class view.

4.5 Queues and status flags.

4.6 Aggregate views.

4.7 Bottom-line view.

4.8 Other perspectives.

4.9 Summary.

Quiz.

5 Programming Languages – Basics and Choices.

5.1 Language choice.

5.2 Basics of computing.

5.2.1 Development cycle.

5.2.2 Dependencies and Makefiles.

5.2.3 Lexical structure of a programming language.

5.3 Object-oriented languages.

5.3.1 Basics of object-oriented methodology.

5.3.2 Advantages and disadvantages of the object-oriented approach.

5.4 Functional programming.

5.5 Summary.

Quiz.

6 Trading Platform Design.

6.1 General design considerations.

6.1.1 Maintainability and documentation.

6.1.2 Scalability and extensibility.

6.1.3 Security and access control.

6.2 Architecture components.

6.2.1 Trade representation.

6.2.2 Market representation.

6.2.3 Static data management.

6.2.4 Quant library.

6.2.5 Trade transformations and operations.

6.2.6 Settlement triggers or pathways.

6.2.7 Batch processing and grid computing.

6.2.8 Credit replication.

6.2.9 Security and audit model.

6.2.10 Documentation and support model.

6.3 Example architecture.

6.4 Advanced architecture.

6.5 Summary.

Quiz.

7 Computing Patterns for Trading.

7.1 Facade pattern.

7.2 Visitor pattern.

7.3 Singleton pattern.

7.4 Factory patterns.

7.5 Component object model.

7.6 Summary.

Quiz.

8 Flexible Derivatives Pricing Tool.

8.1 Design scope.

8.2 Design goals and features.

8.2.1 Pricing tool features.

8.2.2 Data types support.

8.3 User interface.

8.3.1 Main control interface.

8.3.2 Create/edit product.

8.3.3 Create/edit model.

8.3.4 Generating a function template.

8.3.5 Complex parameter visualization.

8.3.6 Pricing interface.

8.3.7 Visualization interface.

8.3.8 Finite difference engine.

8.4 Summary.

Quiz.

9 Pricing Tool to Trading Platform.

9.1 Pricing tool: internals.

9.1.1 Common quant classes.

9.1.2 Main interfaces.

9.1.3 Pluggable pricing models.

9.1.4 Reusable components.

9.1.5 Source code documentation.

9.1.6 External packages.

9.2 Future enhancements.

9.2.1 Trade database.

9.2.2 Market data.

9.2.3 Life-cycle management.

9.2.4 Security and access control.

9.2.5 Batch process.

9.3 Summary.

Quiz.

10 Summing Up.

10.1 Epilogue.

10.2 Further reading.

10.2.1 Quantitative finance.

10.2.2 Computing.

10.2.3 Economics.

Appendix.

A.1 CD Contents.

A.2 Historical perspective.

Glossary of Terms.

Index.