G22.3033-006

Scott Burton

Financial Software Projects

Monday 7:10-9:00  WWH Room 412



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:


    Soul of a New Machine - Tracy Kidder

    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 basic 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 documented 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 40% of the grade.

    The final project will be a working app built using the library submitted at mid-term.
    This will comprise the remaining 40% of the total grade and will be measured on:

       1. Successful execution using test cases provided

       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:



Yield to Maturity formula - Price/Yield continued




Week
Topic
Programming Phase
Materials
2 (9/20)
Capital Markets - Fixed Income Overview

Market players, where are technology dollars spent?

Reading assignments, objectives of course

Set up development environment, build test case handler

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

  Building blocks

Yield-to-price calculator ytm_sheet.xls ytm_sheet_closed_formula.xls NYU_class3.ppt SBB_io.h SBB_io.cc data.txt SBB_date.h SBB_date.cc
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 NYU_class5.ppt tradingbook.txt yieldcurve.txt run.sh
5
Basic Fixed Income Products – the “bullet” bond (continued)

Yield to Maturity formula - Price/Yield continued

 Building the onion – start with simple, fast, separately testable classes libraries

Columbus Day - 10/11
6
Pricing off our yield curve. Performing scenarios by shocking our yield curve, credit ratings. Mid-term submission specification NYU_class6.ppt SBB_ratings.h SBB_ratings.cc
7
Risk Types Review. Historical VaR, Stress Testing, Questions a Risk Manager might ask...

Financial object oriented examples

... NYU_class7.ppt
8
Mid term submission - Nov 1
tradingbook.txt
yieldcurve.txt
9
Requirements of Final Project - communicated Nov 8, server side enhancements
finalGUI_reqs.xls NYU_class8.ppt
10
Variations of VaR. Total Market Risk Framework - expected vs potential...

lecture9.ppt

sbb_socket.h sbb_client.h sbb_server.c
11
Attribution of VaR risk factors ...

ytm_sheet_closed_formula_withsenstable.xls

finalGUI_reqs.xls
rtnewt.c
12
Risk management methodologies - how we apply what we built to total risk

Drill down on historical VaR application and implementation. - IO .h/.cc files to be used to load historical data file (SBB_0001.txt)

var_example.xls
NYU_midterm_review.ppt
SBB_io.h
SBB_io.cc
SBB_0001.txt
SBB_0002.txt
SBB_0003.txt

13
Market Risk measurement

PnL  attribution, Value at Risk (VaR), Stress Testing, Notional exposure

Review of Credit Risk and our Credit Risk Requirements - Loss Given Default, Probability of Default, Expected Loss NYU_class13.ppt
day_1.txt day_2.txt yieldcurve.txt var.tar
14 -
Dec13
Summary of Risk Management Principles and how our app helps us measure and manage risk
FINALfinalGUI_reqs.xls
 
Visualization of risk. Server side submission to check numbers. Final (GUI demo) next week!

  Guest Lectures:


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

         Case Study: Credit derivatives

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