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C# for Financial Markets

C# for Financial Markets

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9780470030080
  • Published In: January 2013
  • Format: Hardback , 856 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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  • Contents 
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    A practice-oriented guide to using C# to design and program pricing and trading models

    In this step-by-step guide to software development for financial analysts, traders, developers and quants, the authors show both novice and experienced practitioners how to develop robust and accurate pricing models and employ them in real environments. Traders will learn how to design and implement applications for curve and surface modeling, fixed income products, hedging strategies, plain and exotic option modeling, interest rate options, structured bonds, unfunded structured products, and more. A unique mix of modern software technology and quantitative finance, this book is both timely and practical. The approach is thorough and comprehensive and the authors use a combination of C# language features, design patterns, mathematics and finance to produce efficient and maintainable software.

    Designed for quant developers, traders and MSc/MFE students, each chapter has numerous exercises and the book is accompanied by a dedicated companion website, providing all source code, alongside audio, support and discussion forums for readers to comment on the code and obtain new versions of the software.

  • List of Figures xxi

    List of Tables xxv

    Introduction 1

    0.1 What Is This Book? 1

    0.2 Special Features in This Book 1

    0.3 Who Is This Book for and What Do You Learn? 2

    0.4 Structure of This Book 2

    0.5 C# Source Code 3

    1 Global Overview of the Book 5

    1.1 Introduction and Objectives 5

    1.2 Comparing C# and C++ 5

    1.3 Using This Book 6

    2 C# Fundamentals 9

    2.1 Introduction and Objectives 9

    2.2 Background to C# 9

    2.3 Value Types, Reference Types and Memory Management 10

    2.4 Built-in Data Types in C# 10

    2.5 Character and String Types 12

    2.6 Operators 13

    2.7 Console Input and Output 14

    2.8 User-defined Structs 15

    2.9 Mini Application: Option Pricing 16

    2.10 Summary and Conclusions 21

    2.11 Exercises and Projects 22

    3 Classes in C# 25

    3.1 Introduction and Objectives 25

    3.2 The Structure of a Class: Methods and Data 25

    3.3 The Keyword ‘this’ 28

    3.4 Properties 28

    3.5 Class Variables and Class Methods 30

    3.6 Creating and Using Objects in C# 33

    3.7 Example: European Option Price and Sensitivities 33

    3.8 Enumeration Types 40

    3.9 Extension Methods 42

    3.10 An Introduction to Inheritance in C# 44

    3.11 Example: Two-factor Payoff Hierarchies and Interfaces 46

    3.12 Exception Handling 50

    3.13 Summary and Conclusions 50

    3.14 Exercises and Projects 51

    4 Classes and C# Advanced Features 53

    4.1 Introduction and Objectives 53

    4.2 Interfaces 53

    4.3 Using Interfaces: Vasicek and Cox-Ingersoll-Ross (CIR) Bond and Option Pricing 54

    4.4 Interfaces in .NET and Some Advanced Features 61

    4.5 Combining Interfaces, Inheritance and Composition 67

    4.6 Introduction to Delegates and Lambda Functions 72

    4.7 Lambda Functions and Anonymous Methods 76

    4.8 Other Features in C# 77

    4.9 Advanced .NET Delegates 80

    4.10 The Standard Event Pattern in .NET and the Observer Pattern 87

    4.11 Summary and Conclusions 91

    4.12 Exercises and Projects 92

    5 Data Structures and Collections 97

    5.1 Introduction and Objectives 97

    5.2 Arrays 97

    5.3 Dates, Times and Time Zones 101

    5.4 Enumeration and Iterators 105

    5.5 Object-based Collections and Standard Collection Interfaces 107

    5.6 The List Class 109

    5.7 The Hashtable Class 110

    5.8 The Dictionary<Key, Value> Class 111

    5.9 The HashSet Classes 112

    5.10 BitArray: Dynamically Sized Boolean Lists 114

    5.11 Other Data Structures 114

    5.12 Strings and StringBuilder 117

    5.13 Some new Features in .NET 4.0 120

    5.14 Summary and Conclusions 123

    5.15 Exercises and Projects 123

    6 Creating User-defined Data Structures 125

    6.1 Introduction and Objectives 125

    6.2 Design Rationale and General Guidelines 125

    6.3 Arrays and Matrices 131

    6.4 Vectors and Numeric Matrices 135

    6.5 Higher-dimensional Structures 139

    6.6 Sets 140

    6.7 Associative Arrays and Matrices 142

    6.8 Standardisation: Interfaces and Constraints 145

    6.9 Using Associative Arrays and Matrices to Model Lookup Tables 152

    6.10 Tuples 155

    6.11 Summary and Conclusions 156

    6.12 Exercises and Projects 156

    7 An Introduction to Bonds and Bond Pricing 159

    7.1 Introduction and Objectives 159

    7.2 Embedded Optionality 160

    7.3 The Time Value of Money: Fundamentals 160

    7.4 Measuring Yield 166

    7.5 Macauley Duration and Convexity 167

    7.6 Dates and Date Schedulers for Fixed Income Applications 168

    7.7 Exporting Schedulers to Excel 176

    7.8 Other Examples 177

    7.9 Pricing Bonds: An Extended Design 178

    7.10 Summary and Conclusions 181

    7.11 Exercises and Projects 181

    8 Data Management and Data Lifecycle 185

    8.1 Introduction and Objectives 185

    8.2 Data Lifecycle in Trading Applications 185

    8.3 An Introduction to Streams and I/O 186

    8.4 File and Directory Classes 195

    8.5 Serialisation Engines in .NET 199

    8.6 The Binary Serialiser 203

    8.7 XML Serialisation 204

    8.8 Data Lifetime Management in Financial and Trading Applications 209

    8.9 Summary and Conclusions 213

    8.10 Exercises and Projects 213

    9 Binomial Method, Design Patterns and Excel Output 215

    9.1 Introduction and Objectives 215

    9.2 Design of Binomial Method 216

    9.3 Design Patterns and Classes 217

    9.4 Early Exercise Features 232

    9.5 Computing Hedge Sensitivities 233

    9.6 Multi-dimensional Binomial Method 233

    9.7 Improving Performance Using Pad´e Rational Approximants 236

    9.8 Summary and Conclusions 238

    9.9 Projects and Exercises 238

    10 Advanced Lattices and Finite Difference Methods 241

    10.1 Introduction and Objectives 241

    10.2 Trinomial Model of the Asset Price and Its C# Implementation 241

    10.3 Stability and Convergence of the Trinomial Method 246

    10.4 The Black-Scholes Partial Differential Equation and Explicit Schemes 246

    10.5 Implementing Explicit Schemes in C# 247

    10.6 Stability of the Explicit Finite Difference Scheme 252

    10.7 An Introduction to the Alternating Direction Explicit Method (ADE) 255

    10.8 Implementing ADE for the Black-Scholes PDE 258

    10.9 Testing the ADE Method 262

    10.10 Advantages of the ADE Method 263

    10.11 Summary and Conclusions 263

    10.12 Appendix: ADE Numerical Experiments 263

    10.13 Exercises and Projects 268

    11 Interoperability: Namespaces, Assemblies and C++/CLI 271

    11.1 Introduction and Objectives 271

    11.2 Namespaces 271

    11.3 An Introduction to Assemblies 273

    11.4 Reflection and Metadata 276

    11.5 C# and Native C++ Interoperability: How Is That Possible? 289

    11.6 Using C# from C++ 293

    11.7 Code Generation Using the Reflection API 298

    11.8 Application Domains 304

    11.9 Summary and Conclusions 309

    11.10 Exercises and Projects 309

    12 Bond Pricing: Design, Implementation and Excel Interfacing 311

    12.1 Introduction and Objectives 311

    12.2 High-level Design of Bond Pricing Problem 311

    12.3 Bond Scheduling 312

    12.4 Bond Functionality and Class Hierarchies 313

    12.5 Calculating Price, Yield and Discount Factors: MathTools 317

    12.6 Data Presentation and Excel Interop 319

    12.7 Bond Data Management 321

    12.8 Using the Excel Files 324

    12.9 Summary and Conclusions 328

    12.10 Exercises and Projects 328

    13 Interpolation Methods in Interest Rate Applications 335

    13.1 Introduction and Objectives 335

    13.2 Interpolation and Curve Building: Basic Formula for Interpolator Tests 335

    13.3 Types of Curve Shape 337

    13.4 An Overview of Interpolators 338

    13.5 Background to Interpolation 339

    13.6 Approximation of Function Derivatives 341

    13.7 Linear and Cubic Spline Interpolation 342

    13.8 Positivity-preserving Cubic Interpolations: Dougherty/Hyman and Hussein 344

    13.9 The Akima Method 348

    13.10 Hagan-West Approach 349

    13.11 Global Interpolation 350

    13.12 Bilinear Interpolation 352

    13.13 Some General Guidelines, Hints and Tips 355

    13.14 Using the Interpolators and Test Examples 357

    13.15 Summary and Conclusions 367

    13.16 Exercises and Projects 367

    14 Short Term Interest Rate (STIR) Futures and Options 369

    14.1 Introduction and Objectives 369

    14.2 An Overview of Cash Money Markets 370

    14.3 Sources of Risk in Money Market Transactions 370

    14.4 Reference Rate and Fixings 371

    14.5 STIR Futures 371

    14.6 Pricing STIR Options 374

    14.7 Generating International Monetary Market (IMM) Dates 378

    14.8 List STIR Futures and STIR Futures Options 384

    14.9 Putting It All Together: STIR versus OTC from a Trader’s Perspective 387

    14.10 Summary and Conclusions 389

    14.11 Exercises and Projects 389

    15 Single-curve Building 393

    15.1 Introduction and Objectives 393

    15.2 Starting Definitions and Overview of Curve Building Process 393

    15.3 Building Blocks 395

    15.4 Introduction to Interest Rate Swap 397

    15.5 The Curve Construction Mechanism 403

    15.6 Code Design and Implementation 406

    15.7 Console Examples 418

    15.8 Summary and Conclusions 426

    15.9 Exercises and Projects 427

    15.10 Appendix: Types of Swaps 429

    16 Multi-curve Building 431

    16.1 Introduction and Objectives 431

    16.2 The Consequences of the Crisis on Interest Rate Derivatives Valuation 431

    16.3 Impact of Using OIS Discounting 436

    16.4 The Bootstrapping Process Using Two Curves: Description of the Mechanism 437

    16.5 Sensitivities 438

    16.6 How to Organise the Code: A Possible Solution 439

    16.7 Putting it Together, Working Examples 445

    16.8 Summary and Conclusions 453

    16.9 Exercises and Projects 453

    16.10 Appendix: Par Asset Swap Spread and Zero Volatility Spread 455

    17 Swaption, Cap and Floor 459

    17.1 Introduction and Objectives: A Closed Formula World 459

    17.2 Description of Instruments and Formulae 459

    17.3 Multi-curve Framework on Cap, Floor and Swaption 467

    17.4 Bootstrapping Volatility for Cap and Floor 469

    17.5 How to Organise the Code in C#: A Possible Solution 474

    17.6 Console and Excel Working Examples 481

    17.7 Summary and Conclusions 490

    17.8 Exercise and Discussion 491

    18 Software Architectures and Patterns for Pricing Applications 493

    18.1 Introduction and Objectives 493

    18.2 An Overview of the GOF Pattern 494

    18.3 Creational Patterns 496

    18.4 Builder Pattern 496

    18.5 Structural Patterns 499

    18.6 Behavioural Patterns 500

    18.7 Builder Application Example: Calibration Algorithms for Cap and Floor 502

    18.8 A PDE/FDM Patterns-based Framework for Equity Options 504

    18.9 Using Delegates to Implement Behavioural Design Patterns 509

    18.10 A System Design for Monte Carlo Applications 510

    18.11 Dynamic Programming in .NET 513

    18.12 Summary and Conclusions 516

    18.13 Exercises and Projects 517

    19 LINQ (Language Integrated Query) and Fixed Income Applications 523

    19.1 Introduction and Objectives 523

    19.2 Scope of Chapter and Prerequisites 523

    19.3 LINQ Query Operators 524

    19.4 LINQ Queries and Initial Examples 526

    19.5 Advanced Queries 531

    19.6 A Numerical Example 533

    19.7 Join and GroupJoin 535

    19.8 Examples in Fixed Income Applications 540

    19.9 LINQ and Excel Interoperability 549

    19.10 Summary and Conclusions 557

    19.11 Exercises and Projects 557

    20 Introduction to C# and Excel Integration 561

    20.1 Introduction and Objectives 561

    20.2 Excel Object Model 561

    20.3 Using COM Technology in .NET 561

    20.4 Primary Interop Assemblies (PIA) 563

    20.5 Standalone Applications 564

    20.6 Types of Excel Add-ins 566

    20.7 The IDTExtensibility2 Interface and COM/.NET Interoperability 569

    20.8 Data Visualisation in Excel 570

    20.9 Conclusion and Summary 578

    20.10 Exercises and Projects 579

    21 Excel Automation Add-ins 581

    21.1 Introduction and Objectives 581

    21.2 COM Overview 581

    21.3 Creating Automation Add-ins: The Steps 583

    21.4 Example: Creating a Calculator, Version 1 585

    21.5 Example: Creating a Calculator, Version 2 588

    21.6 Versioning 590

    21.7 Working with Ranges 590

    21.8 Volatile Methods 590

    21.9 Optional Parameters 591

    21.10 Using VBA with Automation Add-ins 592

    21.11 Summary and Conclusions 593

    21.12 Exercises and Projects 594

    22 C# and Excel Integration COM Add-ins 595

    22.1 Introduction and Objectives 595

    22.2 Preparations for COM Add-ins 595

    22.3 The Interface IDTExtensibility2 596

    22.4 Creating COM Add-ins: The Steps 596

    22.5 Utility Code and Classes 597

    22.6 Using Windows Forms 600

    22.7 Example: Creating a COM Add-in 601

    22.8 Debugging and Troubleshooting 603

    22.9 An Introduction to Excel-DNA 603

    22.10 Excel COM Interoperability and Rate Multi-curve 615

    22.11 Conclusion and Summary 622

    22.12 Exercises and Projects 622

    23 Real-time Data (RTD) Server 625

    23.1 Introduction and Objectives 625

    23.2 Real-time Data in Excel: Overview 625

    23.3 Real-time Data Function 626

    23.4 Example 627

    23.5 The Topic Class and Data 629

    23.6 Creating an RTD Server 631

    23.7 Using the RTD Server 631

    23.8 Testing and Troubleshooting the RTD Server 632

    23.9 Conclusion and Summary 632

    23.10 Exercises and Projects 632

    24 Introduction to Multi-threading in C# 635

    24.1 Introduction and Objectives 635

    24.2 Processes 636

    24.3 Using ProcessStartInfo to Redirect Process I/O 637

    24.4 An Introduction to Threads in C# 638

    24.5 Passing Data to a Thread and between Threads 641

    24.6 Thread States and Thread Lifecycle 644

    24.7 Thread Priority 650

    24.8 Thread Pooling 651

    24.9 Atomic Operations and the Interlocked Class 652

    24.10 Exception Handling 653

    24.11 Multi-threaded Data Structures 654

    24.12 A Simple Example of Traditional Multi-threading 659

    24.13 Summary and Conclusions 661

    24.14 Exercises and Projects 661

    25 Advanced Multi-threading in C# 665

    25.1 Introduction and Objectives 665

    25.2 Thread Safety 666

    25.3 Locking Mechanisms for Objects and Classes 667

    25.4 Mutex and Semaphore 673

    25.5 Notification and Signalling 676

    25.6 Asynchronous Delegates 679

    25.7 Synchronising Collections 681

    25.8 Timers 682

    25.9 Foreground and Background Threads 684

    25.10 Executing Operations on Separate Threads: the BackgroundWorker Class 685

    25.11 Parallel Programming in .NET 687

    25.12 Task Parallel Library (TPL) 691

    25.13 Concurrent Data Structures 694

    25.14 Exception Handling 701

    25.15 Shifting Curves 702

    25.16 Summary and Conclusions 704

    25.17 Exercises and Projects 704

    26 Creating Multi-threaded and Parallel Applications for Computational Finance 707

    26.1 Introduction and Objectives 707

    26.2 Multi-threaded and Parallel Applications for Computational Finance 707

    26.3 Fork and Join Pattern 709

    26.4 Geometric Decomposition 711

    26.5 Shared Data and Reader/Writer Locks: Multiple Readers and Multiple Writers 715

    26.6 Monte Carlo Option Pricing and the Producer–Consumer Pattern 719

    26.7 The StopWatch Class 726

    26.8 Garbage Collection and Disposal 727

    26.9 Summary and Conclusions 730

    26.10 Exercises and Projects 730

    A1 Object-oriented Fundamentals 735

    A2 Nonlinear Least-squares Minimisation 751

    A3 The Mathematical Background to the Alternating Direction Explicit (ADE) Method 765

    A4 Cap, Floor and Swaption Using Excel-DNA 789

    Bibliography 805

    Web References 812

    Index 815

  • Daniel J. Duffy has been working with numerical methods in finance, industry and engineering since 1979. He has written four books on financial models and numerical methods and C++ for computational finance and he has also developed a number of new schemes for this field. He is the founder of Datasim Education and has a PhD in Numerical Analysis from Trinity College, Dublin.

    Andrea Germani was born in Lodi, Italy in 1975, where he currently lives. After graduating from the Bocconi University in Milano, he obtained the Certificate in Quantitative Finance in London under the supervision of Paul Wilmott. Since then he has been working as a trader in some of the major Italian banks, where he gained a deep knowledge of the financial markets. He also worked on valuation and pricing of equity and interest-derivatives, with a focus on the practical use of the models on the trading floor. He is active in training courses of Finance for students and practitioners.

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