CSCI-GA.3033-002

Scott Burton

Financial Software Projects

Graduate Division - Computer Science

Tuesday 7:10-9:00  WWH Room WWH 3



This course will be taught by a veteran Wall St. technology manager currently employed at a top tier investment bank. The theme of this course will be “applied case study” and will focus on Fixed Income markets. The semester will begin with a big-picture view of the markets, the inner workings of an investment bank, the market players, and where software engineers fit in. The students will be grouped into small teams to build a financial application using practical software engineering principles.

Pre-requisites:
   
   
It is assumed that the students can code in C++ or C for the server side. Students can choose the language/framework for the client side.

    No prior experince in the financial sector is required - just a desire to learn it.




Reference Materials:


Software Engineering:

    The Mythical Man - Month - Fred Brooks (this is the only text students will need to purchase)

Application Domain: (should be available in library):


    The Handbook of Global Fixed Income Calculations - Dragomir Krgin

    The Money Markets - Marcia Stigum

    Security Analysis - Graham and Dodd

    Handouts




Course Objectives:

    1. Learn key aspects of the financial sector application domain

    2. Develop software to price a security

    3. Build upon basic components to produce a functioning framework

    4. Apply practical object oriented design principals to the financial domain

    5. Build a working risk management application

    6. See how aspects of formal software development methodologies are applied




Grading policy:

    Quizes will be given periodically and will cover topics presented in lectures, handouts and reference texts.
    The quizes will comprise 20% of the total grade.
    During the majority of the semester the students will be developing an application which will be presented at the end of the semester.
    The mid-term will be a library submitted to the instructor which will be re-compiled and run against a "test" file. This will account for 50% of the grade.

    The final project will be a working app built using the library submitted at mid-term.
    This will comprise the remaining 30% of the total grade and will be measured on:

       1. Accuracy

       2.
Class design

       3.
Execution speed & size

       4.
Testability

       5.
Simplicity

       6. Documentation

       7. Stability/robustness

       8.
Final Presentation - Each group will demo their application and present design rationale




Course Evolution:





Week
Topic
Programming Phase
Materials
2 (9/11)
Capital Markets - Fixed Income Overview
Market players, where are technology dollars spent?
Set up development environment, build test case handler

NYU_class2.ppt makefile SBB_util.h SBB_util.cc
3
 Financial instruments

Building blocks
Implement yield-to-price calculator using slide 2 of NYU_class3.ppt as spec. Quiz on chapters 1-6 of Mythical Man-Month! ytm_sheet_closed_formula.xls NYU_class3.ppt SBB_io.h SBB_io.cc SBB_date.h SBB_date.cc data.txt
4
Basic Fixed Income Products – the “bullet” bond

Yield to Maturity formula - Price/Yield

General YTM formula, coupon bearing and discount type (e.g., "Zero" or "STRIP") implementation NYU_class4.ppt ytm_sheet.xls run.sh tradingbook.txt
5
Basic Fixed Income Products – the “bullet” bond (continued)

Yield to Maturity formula - Price/Yield continued
Pricing off our yield curve. Performing scenarios by shocking our yield curve, credit ratings.  Building the onion – start with simple, fast, separately testable classes libraries
NYU_class5.ppt
yieldcurve.txt tradingbook_with_spread.txt
6 (10/16) fall break
NO CLASS
Pricing off our yield curve. Performing scenarios by shocking our yield curve, credit ratings. Mid-term submission specification NYU_class6.ppt
code_example.cc SBB_ratings.h SBB_ratings.cc tradingbook.txt
7 (10/23)
Risk Types Review. Historical VaR, Stress Testing, Questions a Risk Manager might ask...
MID TERM SUBMISSION - expected output: results.txt tradingbook.txt NYU_class7.ppt results.txt tradingbook.txt
8
Serverize our executable
NYU_class8.ppt GUIrequirements_V1.xls socket.tar
9 (Nov 13 - class after storm)
Requirements of Final Project continued. Sserver side enhancements
SBB_lecture9.ppt
Quiz 2 of 3 - Mythical Man-Month ch 7-12!
finalGUI_reqsV2.xls SBB_util.cc SBB_util.h
10
Variations of VaR. Total Market Risk Framework, server-side recovery - SERVER SUBMISSION 1 of 2
Server submission 1 of 2 due - RETURN TOTAL RESULTS AS WITH OUR EXECUTABLE - the 4 numbers in results.txt!
SBB_lecture9.ppt - (lecture 9 cont)...

var_example.xls

Implement VaR calculation using living-spec spreadsheet
Total VaR ONLY - (breaking out it into Rate and Spread won't be required for this phase
11
Attribution of VaR risk factors ...
NYU_class11.ppt
Show example code for doing VaR attribution.

SBB_0011.txt SBB_0012.txt README

tradingbook_opening.txt tradingbook_closing.txt
12
Risk management methodologies - how we apply what we built to total risk

var_living_spec.xls hist_files.tar
Server-side (2 of 2) requirement: return LGD and total VaR change - two numbers
13
Market Risk measurement

PnL  attribution, Value at Risk (VaR), Stress Testing, Notional exposure
QUIZ 3 of 3 !
Server submission 2 of 2 - server to return LGD and total VaR change between trading book
(between start and end of day files)

pnl_vector_logfile.txt spread_case_logfile.txt

Results detail for 1 security (SBB_0011) to check the pnl vector calculation. There is one row per day with intermediate results showing the daily pnl calculation...
14 Summary of Risk Management Principles and how our app helps us measure and manage risk
 
NYU_final_notes.ppt
FINALfinalGUI_reqs.xls
 
Team presentation - Final (GUI demo) final_files.tar.Z

  Guest Lectures:


         Case Study: Day-in-the-life of a front-line technologist on a trading desk

         Case Study: Computing and reporting risk in a tech group on Wall St