Testing and Finance

On the Design Board: From Single- to Multi-Curve

Introduction

Standard fixed-income applications make a larger and larger use of the multi-curve framework to price products and hedge risks. For whatever reason this is the case, it is useful to know how to implement such a framework.

We have already talked about multi-curves in the past. Here we gave a list useful references and here we illustrated the mean features of risk metrics and sensitivity patterns. In this blog, we describe how to design the multi-curve framework. We do not claim that this is the only way or the best way. This is one possible way, which however turned out to work quite well within our system and happened to be easily integrated into our library.

Code snippets that will be shown below have been developed in C# using Visual Studio. Continue reading

ETL for Daily Liquidity Monitoring

Daily monitoring of liquidity has become a crucial job inside any bank. We implemented the Extract-Load-Transform (ETL) operations of liquidity tools for different trading desks for the modelling and risk-reporting departments in a large Dutch bank, which allows the bank to run its liquidity-monitoring tools daily.

Liquidity input data come from various sources and all have different formats. Some are Excel files, while some others are comma-separated text files. Moreover, date conventions are not standard and depends on external factors, such as Excel settings. In addition, all the different pieces of information have to be adjusted before they can be used. Such adjustments include specific selection and join operations.

Our input tool has been developed in C#. We have created in-memory databases and used LINQ to perform DB operations. The code has been unit-tested. Log text files and Excel output files are created daily. The tool has been accompanied by a self-contained user manual explaining the business logic, configuration setting and command-line arguments, exceptions that may arise during the execution.

Review of Lattice Construction Methods

Just before year end we put out our paper, titled "Review of Lattice Construction Methods"!

lattice

This paper extends the generalized procedure for building trees for short rates by Hull & White. A generalization for any mean and standard deviation of the underlying short rate model is presented. In addition we review the methodologies for constructing lattice models and give a step-by-step explanation on how to construct trinominal trees. We apply the formalism to some explicit examples of various complexity.

 

Full text can be found here

 

Finance: Between Testing and Regulations

Last July 8th we hosted our second meet up. The announced topics were Testing and Regulations, however the event was mostly testing. In a way, it has been very exciting to organise it, mainly because of some last-minute changes that affected the whole program. In fact, one of the speaker was sick and could not attend, and on top of that a few unexpected technical problems arose at the MixTup venue as well. Eventually everything worked fine and all the efforts made during the few days and hours before the event contributed to the success of the evening.

The chairman of the event was my colleague Jorrit-Jaap de Jong (Ugly Duckling), who entertained the audience, introduced the speakers, and reminded everybody of the purposes of the FEN evenings (which you can read in the ad of our introductory meeting here). The two talks were essentially on testing. The first speaker was our financial engineer Michele Maio (Ugly Duckling) who introduced various testing techniques and good practices such as test driven development and automated testing (mostly focusing on Excel and FitNesse). Michele used the programming language C#. The second speaker was Mert Aybat (Connectis). Mert had an extremely nice "live" and interactive presentation on how to use Mocks when testing complicated projects with many dependencies, and he definitely showed his competence in testing. Mert used Java and Mockito as tools of choice.

The crowd present to the meeting also deserves some comment. Besides the people who attended our first meeting, we were happy to see many new faces who joined this second event, coming both from the software and the finance industries.  They all stimulated the discussions that arose during the presentations: thanks to them the flow of information was not in one direction only.

What will happen in the future?

It is important for us to keep track of what we want to achieve and what the FEN events are all about, namely: sharing knowledge, creating an intellectual stimulating environment, meeting like-minded people, discussing trends and hot topics in finance, and networking. In order to move forward, events are planned every couple of month, and the next one will be in autumn when everybody is back from summer vacations. We will keep the current format, which has been successful so far: hosting two talks within an informal environment with topics related to software, finance, and financial engineering.

Requests

To make the FEN community larger, it is crucial that everybody is active. That's why we would like to reminder everybody that anybody is welcome to join. Moreover, as Jorrit mentioned during this event:

  • we are always looking for speakers, so if anybody is interested to talk at next event please let us know;
  • we are also looking for locations, so if anybody would like to organise the next event with use by booking a seminar room in his/her bank or institution please let us know;
  • we are always looking forward to growing our community, so please share it with your network.

Invite : Between Testing and Regulations

FEN Event - July 2014

 

Amsterdam - July 8 2014, 19:00 @ MixTup

Financial Engineering Netherlands (FEN) is a community of specialists in software and in the financial sector that everybody can join and consult.

The next FEN event will be held on July 8 and the topic will be about

"Finance Between Testing and Regulations".

The speakers for this evening are:

Paramita Banerjee (ING) **
Paramita is a business analyst at ING. Her predominant focus has been on operationlizing change solution within global investment banks normally representing AML and Front-Office interests, and her specialties are requirement elicitation and analysis and process modelling. She is an expert in the international banking and international finance sectors.

Mert Aybat  (Connected Information Systems - Connectis)
Mert is a software engineer at Connectis. He has a strong quantitative (PhD in particle physics) background as well as an exhaustive international experience (he has lived and worked in many countries, such as US, Switzerland, Netherlands, etc.). His current work is in the area of information technology in general, and his specialty is information security.

The Talks

  • Paramita Banerjee: Basel III on Stress Testing & Backtesting **
  • Mert Aybat: Advanced Testing with Mocks: Theory and Practice

No prior knowledge of finance and/or 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 come 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 this event was.

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** Paramita was sick during the actual event, so she could not attend. She was replaced by the Duckling Michele Maio (who also spoke at our opening event):

  • Michele Maio: Automated Testing in Finance

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Invite: Test Driven Development for Financial Engineers

Opening FEN Event - April 2014

 

Amsterdam - April 24 2014, 19:00 @ Mixtup

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

  • to bring together experts with similar passions, who are willing to improve themselves by sharing their knowledge with others, keeping the topics within the interest range of financial engineers, and hence including testing, programming, technology, finance, mathematical finance, etc. as subjects of discussion;
  • to create an intellectually stimulating and social environment, where people can discuss about trends, problems, progress and achievements in any of the above-mentioned fields, in order to find what really matters in our work and discover how we can improve ourselves in a collaborative way.

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

"Test Driven Development for Financial Engineers".

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: 

  • Session I: Test Driven Development in Unit-like frameworks
  • Session II: Test Automation and FitNesse

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.

Testing & Finance 2012 : “Ford’s Lean”

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

Testing and Finance 2011: Preparationism

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