5092.12
Final project design
& what comes next
FM5092
Chris Prouty
University of Minnesota
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• Your exotics projects should now be handed in
• Two weeks from now is a review session for
the final exam (next week no class)
• The final exam is the following week
• Today we will design elements of your final
project, which is due the night before the final
• We will also discuss what comes next?
• If you liked the content of this class and want
to write more code, there are many different
directions you may proceed
• I’ll try to highlight several of the most
interesting (to me)
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• We need to delineate the tasks ahead of us,
because they are many
– Design the data model in Entity
– Generate an SQL database from our Entity model
– Create an GUI app that permits the user to curate
elements of the Entity model
• This has many, many sub-elements
– Connect the GUI app to our Monte Carlo simulator
– Make the GUI app able to take all the individual
elements of a “trade on the books” and hand it off
to the simulator
– Once a product has been priced, sum all the
values to create a portfolio value
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• I suspect that this will be your most ambitious
project, so, as always, don’t dawdle
• Step 1: Design the data model
• Recall this slide from a previous lecture
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• We need to take that model and design it in
Entity as part of our project
The fields shown in
the entities are taken
from the model we
derived in a previous
lecture
The relationships
among the entities
is crucially
important to get
correct – note
carefully
the different
types present
here
Please review the
numerous pieces of
commentary on TPT
vs TPH and various
ways to structure
the problem of
modeling an Instrument.
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• There is a 1 -> many relationship between:
– Instrument and Trade
– Instrument and Historical Price
– Instrument and InstType (if using a TPH approach)
• InterestRate lives on its own
• Generating the Entity model presents many
opportunities for mistakes
• Especially after the SQL database is generated,
making changes will be laborious
• If you find a mistake after your database is
generated, you will probably need to delete
the SQL database and start over… 
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• This data model is incomplete for our
purposes
• The fields currently defined cover European,
Asian, Range, and Lookback options
• Digital options require a rebate scalar field
• Barrier options require a barrier field and
some type of barrier type entity
• The barrier type entity could contain all the
types of barriers that exist
• It is up to you to define an updated data
model that encompasses all the fields,
entities, and associations you will need
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• Step 2: Generate an SQL database from Entity
model
• Recall this slide from 5092.9
• Follow these instructions…
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• Step 3: Create GUI app to curate elements of
Entity model
• The GUI design encompasses most of the
functionality you’re adding to your current
simulator
• Think of the Portfolio Manager GUI as a
“dashboard” that would allow you to manage
financial positions
• As such a manager, you care about the trades
in your portfolio, their characteristics, and
their P&L
• Design it like you would use it!
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• GUI specifications:
– GUI must provide a view that lists all trades
currently in the database
– The view must display the following about each
trade
• Direction
• Quantity
• Instrument
• Instrument type
• Trade price
• “Mark price” – simulated price
• P&L between trade price and mark price
• All Greeks
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• GUI specifications:
– The Trade view has fields for which special
calculation must be considered
• The P&L field must be calculated to include the
direction of the trade and the quantity
• The direction and quantity of the Greek fields must also
be considered
• Do not forget that a Stock has a delta of “1” – the delta
field must be correct for Stocks too!
– The fields need not be populated when trades are
loaded
– The population of price and Greeks will take place
only after a simulation is run
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• GUI specifications:
– Example of “main” screen with trade view
Here, all trades are listed and
the specified fields are populated
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• GUI specifications:
– The GUI must provide a way to curate the
following Entities
• Instrument type
• Instrument
• Trade
• Interest rate
• Historical price
– Curate means:
• The user must be able to create new instances of each
of the items above
• The user must be able to delete instances of each of
the items above
• There is an order to the creation of some Entities
You may choose to hard-code this…
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• Curate is practically equal to CRUD
– Create
– Read
– Update
– Delete
• These SQL commands should be familiar, but a
user needs a GUI-based friendly way to go
about editing data
• Delete may present an extra bit of work
– What happens if you try to delete something that
has foreign key associations elsewhere in the
database?
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• An order exists to the creation of Entities
• Consider creating a Trade…
Instrument Type
Instrument
Trade
The first step is to create
an Instrument Type, since
all Instruments must be
typed (again, this may be
hard-coded in the model)
After a type is present,
an instrument, like a
Stock, can be created
To have a trade, we must
have an instrument to
trade. To have an
instrument, we must
have a type that defines
the instrument.
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• GUI specifications:
– Example of curating an Instrument
Selecting File -> New -> Instrument
displays a dialog that can be
populated by the user. Once the
Instrument is created, Trades may
be created using that Instrument.
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• GUI specifications:
– Example of curating historical prices
I created a Price Analysis
window to curate a price
collection for a particular
Instrument. Here, a user
can select rows in the
data grid and delete them
to remove the price from
the collection. This action
also saves changes to the
historical prices to the
database.
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• GUI specifications:
– The user must have a means by which trades are
loaded from the database
– This may occur automatically when the program
loads, or by instruction from the user
– In my example, I chose a manual process initiated
by the user to populate trades
– The trades should populate the Trade view
described in an earlier slide
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• GUI specifications:
– There must be a view that, when multiple trades
are selected by the user, provides the sum of the
following characteristics
A “Totals” view must be present to sum all selected trades in the “Trades”
view
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• Broadly speaking, users should be able to
easily create, view, and manipulate all the
Entities that exist
• Keep in your mind that the purpose of this
assignment is to build a tool that manages a
book of Trades
• All the tools necessary to create the Trades
and the ancillary data necessary to properly
price and manage the trades must be present
in your project
• Again, imagine that you are building this tool
to use it yourself!
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• Step 4: Wire up your Monte Carlo simulator
to the Portfolio Manager app
• Once a GUI is in place to curate all the Entity
objects, the Monte Carlo simulator must be
added
• The easiest way to perform this task is to take
the core elements of your simulator and save
them as a project
• Then, in the Portfolio Manager GUI solution,
add the Monte Carlo simulator project
• Add the simulator as a reference in the GUI
app and code should then have access
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• Here I show the idea of a solution PortMgr
with the projects PortMgr and MontyLib
• Right-click on the PortMgr project and select
Add Reference
An existing project can be
added to a solution
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• Here, a reference may be made to another
existing project in the solution
• Once the reference is added, add the
namespace reference to any code you wish to
use the simulator
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• Pricing specifications:
– Your portfolio manager must permit the addition
of the following types of instruments
• Stock
• European option
• Digital option
• Barrier option
• Asian option
• Range option
• Lookback option
– The user must be able to create Trades on each of
these products
– The user must be able to value all the Trades of
these product types using simulation
Again, you may alternatively
choose to make these static
in your data model and
Portfolio Manager GUI.
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• Pricing specifications:
– When an Instrument Type is created, a pricing
model must be selected; the system needs to
know how to value a specific type of instrument
being created
– There must be a user-initiated way to begin
pricing the book via simulation
– Trade “mark price”, P&L, and Greeks should be
updated after simulation runs
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• Pricing specifications:
– Consider the inputs to the simulator for all options
now
• Underlying price
• Strike price
• Rebate
• Barrier price
• Barrier type
• Volatility
• Interest rate
• Tenor
– Some of the inputs come from the Instrument
– Others come from the user or from ancillary Entity
objects in the project
Option object
Last price in historical prices
collection
Simple input from user
Interpolation from collection of
interest rate points
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• Pricing specifications:
– The characteristics in blue should be easy enough;
they come from the option object
– The underlying price should refer to the last
recorded price of the underlying product
• If there are not any recorded prices, raise an exception
– The volatility should be a simple input on the main
portfolio manager window, as shown here
– The interest rate should be a linear interpolation
between the two nearest points present as
Interest Rate entity objects
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• Step 5: Ensure that the Portfolio Manager
app and the simulator work seamlessly
• Try adding a few different Stock instruments
• Add a few options on the Stock instruments
with different characteristics
• Build a portfolio of trades using various
instruments
• As an exercise, try to build a delta-neutral
portfolio
• Price the book and select all the trades to see
the P&L
• Change the underlying prices and re-price!
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• There are a couple “acid tests” that will be
helpful as you build the simulator
• Acid Test #1
– Buy an option instrument. Sell the same
instrument and quantity for a higher price. The
sum of those two trades should create a positive
P&L. They should also create flat Greeks.
• Acid Test #2
– Build a delta-hedged portfolio with a long
European option. Add a new price for the
underlying dramatically different from the
previous price. Re-price the book. The net delta
should now be different and P&L should be
positive.
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• 5 Minute Challenge
Write the formula to calculate the P&L of a
trade which is long fifty European options at a
price of 10.89. The current mark is 13.55.
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• Solution
The P&L would be calculated as follows:
(13.55 – 10.89) x 50 = 133
If the trade were short fifty options:
(10.89 – 13.55) x 50 = -133
W
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• I hope you’ve enjoyed this class and the
tinkering with programming and technology
that comes along with it
• We are out of time, but if you’re motivated to
learn more in this vein, I have some
suggestions
• My suggestions fall into several categories
– Programming
– Web/cloud
– Electrical engineering
– Finance/trading
– Art
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(
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• If you liked the functional design aspects of
Python and C#...
• F# is a functional language designed by
Microsoft and part of .NET
• I have not personally used it much, but I’m
told it’s very good for finance applications
W
h
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t
’
s

n
e
x
t
?

(
P
r
o
g
r
a
m
m
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)
• If you liked C#, but don’t like Windows…
• .NET Core is the platform-independent
implementation of .NET
• .NET Core apps run easily on Mac, Linux, or
Windows, permitting you to use your C# skills
across platforms!
W
h
a
t
’
s

n
e
x
t
?

(
P
r
o
g
r
a
m
m
i
n
g
)
• If you liked C#, but don’t like Microsoft…
• C# takes a lot of inspiration from Java
• With a good grasp of C#, picking up Java isn’t
too tough
• Recent versions of Java even have LINQ-like
features…pretty neat
• Works across many different platforms
W
h
a
t
’
s

n
e
x
t
?

(
P
r
o
g
r
a
m
m
i
n
g
)
• If you want to write C# for Android and iOS
devices…
• Xamarin Studio gives you the ability to write
C# and compile it for Android and iOS
• I can’t personally attest to its quality, but it
seems widely-used
• Many C# features are available in code
W
h
a
t
’
s

n
e
x
t
?

(
P
r
o
g
r
a
m
m
i
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g
)
• If you want to extend Visual Studio…
• ReSharper is a “helper” that extends the
functionality of Visual Studio
• Several students in past years have used it as
professional programmers and tend to love it
• There are competing similar products
W
h
a
t
’
s

n
e
x
t
?

(
P
r
o
g
r
a
m
m
i
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g
)
• If you want to take multi-threading to the next
level…
• As mentioned in an earlier lecture, multi-
threading can be extended to GPUs
• There exists a project called C++ AMP to
perform just this task
• It can be accessed from C#...
W
h
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t
’
s

n
e
x
t
?

(
P
r
o
g
r
a
m
m
i
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g
)
• If you want a lightweight IDE that’s free to do
all your cool C# and web coding…
• Visual Studio Code is a free IDE made by
Microsoft
• It’s a simple yet powerful and flexible code
editor that’s easily customizable
• Great for .NET Core stuff
W
h
a
t
’
s

n
e
x
t
?

(
P
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o
g
r
a
m
m
i
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g
)
• If you want to expand your OS horizons…
• Linux is encroaching ever more quickly into
Windows’ market share
• Having basic Linux skills is becoming very
important for developers
• In the future, I wouldn’t be surprised if this
class switches to Linux
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n
e
x
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?

(
W
e
b
/
c
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o
u
d
)
• If you want to use your .NET skills on the
web…
• ASP stands for Active Server Pages
• You can use a lot of your C# knowledge to
write responsive websites
• There exist ASP.NET project templates in
Visual Studio
• Desktop coding skills transfer surprisingly well
W
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’
s

n
e
x
t
?

(
W
e
b
/
c
l
o
u
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)
• If you want to use your C# skills for web apps…
• TypeScript is a superset of Javascript and is
made by Microsoft
• If you like writing thicker desktop app-style
programs, writing TypeScript is a fairly easy
transition to web apps
• TypeScript is used by bigger frameworks like
Angular and React
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h
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’
s

n
e
x
t
?

(
W
e
b
/
c
l
o
u
d
)
• If you want to write desktop apps but want
them to run in a web browser…
• Angular is a Google technology that makes
writing web apps oddly easy if you’re coming
from a desktop developer background
• I love Angular
W
h
a
t
’
s

n
e
x
t
?

(
W
e
b
/
c
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o
u
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)
• If you want to deploy your code on the
Internet for everybody…
• Microsoft’s cloud service is Windows Azure
• Competitors include Amazon EC2 and Heroku
• Azure is incredibly well-integrated into Visual
Studio
• You may host sites, dbs, virtual machines, etc.
W
h
a
t
’
s

n
e
x
t
?

(
W
e
b
/
c
l
o
u
d
)
• If you want to understand containerization…
• Docker is a tool to create containers that run
specific applications
• Making a docker container means bundling up
all the things an app needs to run (including
the OS) into a tidy portable package
• Very useful for cloud stuff
W
h
a
t
’
s

n
e
x
t
?

(
E
l
e
c
.

E
n
g
i
n
e
e
r
i
n
g
)
• If you want to build a physical device…
• An Arduino board makes it extremely easy to
prototype physical devices with automation
• You may program this simple board to control
electrical current output
• There are many easily-connectable sensors
W
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’
s

n
e
x
t
?

(
F
i
n
a
n
c
e
/
t
r
a
d
i
n
g
)
• If you want to learn more about exotics
trading…
• The book Dynamic Hedging by Nassim Taleb is
a good place to start
• It has many real-world considerations in the
trading of exotics
W
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t
’
s

n
e
x
t
?

(
F
i
n
a
n
c
e
/
t
r
a
d
i
n
g
)
• If you want to write code to trade
autonomously…
• Automated trades almost universally take
place over the FIX protocol
• Using it, you can write code to execute orders
• The brokerage Interactive Brokers permits
retail clients to connect via FIX…pretty cool
W
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n
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(
A
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• If you want to read about the nature of
intelligence and consciousness
This is my favorite book.
W
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x
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(
A
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• If you want to stop thinking about finance,
trading, programming, and this class…
• This book is a superb introduction to modern
art – I loved it
In my view, the notion
of “objective value” is
a trope. Learn about
art in order to learn
about relative value – the
only kind of value there is.