Here we share our current projects, research ideas, events, news and anything else that comes out of our brainstorming sessions
Ugly Duckling Finance is currently working on its financial library, UDFinLib. UDFinLib will appear soon and will be advertised on this blog and website. Everybody interested is therefore invited to come back later when it will be ready to use. In this blog post I would like to anticipate some of the features of the library.
The library comes in two parts: the core and the Excel Add-in. Continue reading
On the evening of last April 24th at the Ugly Duckling office in Amsterdam we celebrated the birth of our new series of events for financial engineers. We called it Financial Engineering Netherlands, and we hope we will create a community of specialists that everybody can join and consult.
The aims of Financial Engineering Netherlands are
Financial Engineering Netherlands (FEN) is a community of specialists in software and in the financial sector that everybody can join and consult.
The aims of Financial Engineering Netherlands are
The events will be organised in a relaxed way, with an informal pre-event drink, followed by the real event, and another social drink at the end. The real event (normally) includes two talks, with a short break in between, given by speakers in the software or finance industry. In this sense, this opening evening will be an exception, having only one speaker for the two sessions, with the additional honour of welcoming the participants. Moreover, the social aspect of the event guarantees that the participants meet new people, thus creating a great opportunity to grow each other's network.
The very first event will be held on April 24 and the topic will be about
The host and speaker for the opening event will will be:
Michele Maio (Ugly Duckling B.V.)
Michele recently joined Ugly Duckling in the Finance department. He has a quantitative background (PhD in theoretical physics) and his current work in finance spans various technical aspects in quantitative finance, such as research and implementation of interest rate derivative and their associated risk and the construction of the Ugly Duckling Financial Library.
Michele will introduce the Financial Engineering Netherlands community to the audience and then will give two talks about technical -but relevant- aspects of financial engineering. Specifically, the topics will be:
This will be a beginner's event, so no prior knowledge of financial engineering and/or testing will be required.
Registration
Via the Meet-up website. Please register asap.
If you have already registered but you are not able to attend anymore, please let us know.
Space-time Coordinates
Mixtup, Ferdinand Bolstraat 8, 1072 LJ Amsterdam (map). Doors open at 19:00.
Blog
Read here about how the opening night was, with slides of the talks.
In 1920 John Maynard Keynes wrote 'The Economic Consequences of the Peace' as a critique of the Paris Treaty which outlined the repayment plan for the damages done by the Axis during the First World War. Keynes pointed out that the damage claims were largely excessive and would bankrupt Germany within short order. Nevertheless debt ridden Europe looked to Germany for capital to rebuild their economies. The consequence was the inevitable collapse of the Reichsmark which drew the Weimar Republic in to the abyss with it. Some even argue that the economic collapse, and the consequent large scale poverty, put Germany with its back against the wall giving the Nazi party room to seize Power. Continue reading
During our Testing & Finance 2012 talk we demonstrated how the concepts used by HROs can be used to manage the operational risks faced by modern financial institutions.
At financial institutions, the Chief Risk Officer’s primary concern is detecting and preventing catastrophes before they occur, i.e. managing risk. While financial risks are important, operational risks are becoming more so. Controlling these risks requires a new attitude to making changes, testing, releasing software and developing the right team. Continue reading
This article is based on research we did on High Reliability Organizations (HROs) for our Testing and Finance 2012 talk. It intended as a starting point for those interested in learning more about HROs. If nothing else, it provides an extended reference section for further reading and suggests some useful web resources.
What is an HRO?
HROS are organizations that succeed in avoiding catastrophes in an environment where accidents can be expected due to risk factors and the complexity of the system. Consider, for example, the organization behind oilrigs where it is easy to imagine someone getting injured due to a mistake. What starts out as a small mistake may quite literally explode into a big problem. As Tim Harford notes: Continue reading
Ella places two printouts on John’s desk and points at the total columns. “Why don’t these numbers match?” she asks. John looks for a second, hoping Ella has made a simple mistake. But she’s right, they should match. John spends the rest of the day crawling through dozens of spreadsheets, attempting to find the source of the discrepancy. Eventually the problem is found, but only after turning up five or six similar issues. The team collectively pauses for breath when they consider the number of decisions made on faulty data. It is another week before John has fixed the problems and can return to his original task.
This is a particularly familiar story to many growing financial companies, which often prompts the question “how did things get like this?”. To find the answer, we need to investigate a misunderstood dynamic in spreadsheet and tool development. Consider the following diagram:
Figure 1 – The Square Law of Spreadsheets Effects Diagram. Continue reading
Over the Christmas period of 2010, we started to put together a number of ideas. We cross-referenced a study of geniuses with what we’ve seen on the shop floor and combined that with the definition of a problem. (At the most abstract, solving problems is what we do, and a deep understanding of what a problem is precedes its solution.) Continue reading
Introduction
Black, Scholes and Merton’s famous option price formula wasn’t a new discovery, as shown in the next section. The formula was well know at the time and widely used in the option market. Often it is noted that option trading took off after the publication of the Black-Scholes formula, but this simply is not true... however, the reverse is. In 1973 the Chicago Board Options Exchange (CBOE) opened for business as the first option exchange in the world, making options widely available. This and the introduction of handheld calculators, to do the necessary computations for Black and Scholes, made the formula a success. The formula may not have been a break through, but the way it was derived certainly was. Using the risk free portfolio was the step that made the known formula acceptable to academia. The derivation of the formula is the topic of this note based on research I did for a class on derivatives. Continue reading
Introduction
In our experience, each client is different, context is always king. However, because many financial institutions start off with end-user programmers, people who program for themselves, usually in Excel with VBA, the organisations tend to follow similar growth paths. In the end, financial institutions end up with a consolidated engineering team, what is often called the ‘Engineering Hypermarket’. The hypermarket is a place where the financial institution can ‘shop’ for:
The hypermarket is characterised by high levels of automation, discipline and rapidity; they do things quickly. Building a hypermarket is a bootstrapping process that starts with the smoke test. Continue reading