C# for Financial Markets

List of Figures xxi
<p>List of Tables xxv</p>
<p>Introduction 1</p>
<p>0.1 What Is This Book? 1</p>
<p>0.2 Special Features in This Book 1</p>
<p>0.3 Who Is This Book for and What Do You Learn? 2</p>
<p>0.4 Structure of This Book 2</p>
<p>0.5 C# Source Code 3</p>
<p>1 Global Overview of the Book 5</p>
<p>1.1 Introduction and Objectives 5</p>
<p>1.2 Comparing C# and C++ 5</p>
<p>1.3 Using This Book 6</p>
<p>2 C# Fundamentals 9</p>
<p>2.1 Introduction and Objectives 9</p>
<p>2.2 Background to C# 9</p>
<p>2.3 Value Types, Reference Types and Memory Management 10</p>
<p>2.4 Built–in Data Types in C# 10</p>
<p>2.5 Character and String Types 12</p>
<p>2.6 Operators 13</p>
<p>2.7 Console Input and Output 14</p>
<p>2.8 User–defined Structs 15</p>
<p>2.9 Mini Application: Option Pricing 16</p>
<p>2.10 Summary and Conclusions 21</p>
<p>2.11 Exercises and Projects 22</p>
<p>3 Classes in C# 25</p>
<p>3.1 Introduction and Objectives 25</p>
<p>3.2 The Structure of a Class: Methods and Data 25</p>
<p>3.3 The Keyword this 28</p>
<p>3.4 Properties 28</p>
<p>3.5 Class Variables and Class Methods 30</p>
<p>3.6 Creating and Using Objects in C# 33</p>
<p>3.7 Example: European Option Price and Sensitivities 33</p>
<p>3.8 Enumeration Types 40</p>
<p>3.9 Extension Methods 42</p>
<p>3.10 An Introduction to Inheritance in C# 44</p>
<p>3.11 Example: Two–factor Payoff Hierarchies and Interfaces 46</p>
<p>3.12 Exception Handling 50</p>
<p>3.13 Summary and Conclusions 50</p>
<p>3.14 Exercises and Projects 51</p>
<p>4 Classes and C# Advanced Features 53</p>
<p>4.1 Introduction and Objectives 53</p>
<p>4.2 Interfaces 53</p>
<p>4.3 Using Interfaces: Vasicek and Cox–Ingersoll–Ross (CIR) Bond and Option Pricing 54</p>
<p>4.4 Interfaces in .NET and Some Advanced Features 61</p>
<p>4.5 Combining Interfaces, Inheritance and Composition 67</p>
<p>4.6 Introduction to Delegates and Lambda Functions 72</p>
<p>4.7 Lambda Functions and Anonymous Methods 76</p>
<p>4.8 Other Features in C# 77</p>
<p>4.9 Advanced .NET Delegates 80</p>
<p>4.10 The Standard Event Pattern in .NET and the Observer Pattern 87</p>
<p>4.11 Summary and Conclusions 91</p>
<p>4.12 Exercises and Projects 92</p>
<p>5 Data Structures and Collections 97</p>
<p>5.1 Introduction and Objectives 97</p>
<p>5.2 Arrays 97</p>
<p>5.3 Dates, Times and Time Zones 101</p>
<p>5.4 Enumeration and Iterators 105</p>
<p>5.5 Object–based Collections and Standard Collection Interfaces 107</p>
<p>5.6 The List Class 109</p>
<p>5.7 The Hashtable Class 110</p>
<p>5.8 The Dictionary&lt;Key, Value&gt; Class 111</p>
<p>5.9 The HashSet Classes 112</p>
<p>5.10 BitArray: Dynamically Sized Boolean Lists 114</p>
<p>5.11 Other Data Structures 114</p>
<p>5.12 Strings and StringBuilder 117</p>
<p>5.13 Some new Features in .NET 4.0 120</p>
<p>5.14 Summary and Conclusions 123</p>
<p>5.15 Exercises and Projects 123</p>
<p>6 Creating User–defined Data Structures 125</p>
<p>6.1 Introduction and Objectives 125</p>
<p>6.2 Design Rationale and General Guidelines 125</p>
<p>6.3 Arrays and Matrices 131</p>
<p>6.4 Vectors and Numeric Matrices 135</p>
<p>6.5 Higher–dimensional Structures 139</p>
<p>6.6 Sets 140</p>
<p>6.7 Associative Arrays and Matrices 142</p>
<p>6.8 Standardisation: Interfaces and Constraints 145</p>
<p>6.9 Using Associative Arrays and Matrices to Model Lookup Tables 152</p>
<p>6.10 Tuples 155</p>
<p>6.11 Summary and Conclusions 156</p>
<p>6.12 Exercises and Projects 156</p>
<p>7 An Introduction to Bonds and Bond Pricing 159</p>
<p>7.1 Introduction and Objectives 159</p>
<p>7.2 Embedded Optionality 160</p>
<p>7.3 The Time Value of Money: Fundamentals 160</p>
<p>7.4 Measuring Yield 166</p>
<p>7.5 Macauley Duration and Convexity 167</p>
<p>7.6 Dates and Date Schedulers for Fixed Income Applications 168</p>
<p>7.7 Exporting Schedulers to Excel 176</p>
<p>7.8 Other Examples 177</p>
<p>7.9 Pricing Bonds: An Extended Design 178</p>
<p>7.10 Summary and Conclusions 181</p>
<p>7.11 Exercises and Projects 181</p>
<p>8 Data Management and Data Lifecycle 185</p>
<p>8.1 Introduction and Objectives 185</p>
<p>8.2 Data Lifecycle in Trading Applications 185</p>
<p>8.3 An Introduction to Streams and I/O 186</p>
<p>8.4 File and Directory Classes 195</p>
<p>8.5 Serialisation Engines in .NET 199</p>
<p>8.6 The Binary Serialiser 203</p>
<p>8.7 XML Serialisation 204</p>
<p>8.8 Data Lifetime Management in Financial and Trading Applications 209</p>
<p>8.9 Summary and Conclusions 213</p>
<p>8.10 Exercises and Projects 213</p>
<p>9 Binomial Method, Design Patterns and Excel Output 215</p>
<p>9.1 Introduction and Objectives 215</p>
<p>9.2 Design of Binomial Method 216</p>
<p>9.3 Design Patterns and Classes 217</p>
<p>9.4 Early Exercise Features 232</p>
<p>9.5 Computing Hedge Sensitivities 233</p>
<p>9.6 Multi–dimensional Binomial Method 233</p>
<p>9.7 Improving Performance Using Pad&acute;e Rational Approximants 236</p>
<p>9.8 Summary and Conclusions 238</p>
<p>9.9 Projects and Exercises 238</p>
<p>10 Advanced Lattices and Finite Difference Methods 241</p>
<p>10.1 Introduction and Objectives 241</p>
<p>10.2 Trinomial Model of the Asset Price and Its C# Implementation 241</p>
<p>10.3 Stability and Convergence of the Trinomial Method 246</p>
<p>10.4 The Black–Scholes Partial Differential Equation and Explicit Schemes 246</p>
<p>10.5 Implementing Explicit Schemes in C# 247</p>
<p>10.6 Stability of the Explicit Finite Difference Scheme 252</p>
<p>10.7 An Introduction to the Alternating Direction Explicit Method (ADE) 255</p>
<p>10.8 Implementing ADE for the Black–Scholes PDE 258</p>
<p>10.9 Testing the ADE Method 262</p>
<p>10.10 Advantages of the ADE Method 263</p>
<p>10.11 Summary and Conclusions 263</p>
<p>10.12 Appendix: ADE Numerical Experiments 263</p>
<p>10.13 Exercises and Projects 268</p>
<p>11 Interoperability: Namespaces, Assemblies and C++/CLI 271</p>
<p>11.1 Introduction and Objectives 271</p>
<p>11.2 Namespaces 271</p>
<p>11.3 An Introduction to Assemblies 273</p>
<p>11.4 Reflection and Metadata 276</p>
<p>11.5 C# and Native C++ Interoperability: How Is That Possible? 289</p>
<p>11.6 Using C# from C++ 293</p>
<p>11.7 Code Generation Using the Reflection API 298</p>
<p>11.8 Application Domains 304</p>
<p>11.9 Summary and Conclusions 309</p>
<p>11.10 Exercises and Projects 309</p>
<p>12 Bond Pricing: Design, Implementation and Excel Interfacing 311</p>
<p>12.1 Introduction and Objectives 311</p>
<p>12.2 High–level Design of Bond Pricing Problem 311</p>
<p>12.3 Bond Scheduling 312</p>
<p>12.4 Bond Functionality and Class Hierarchies 313</p>
<p>12.5 Calculating Price, Yield and Discount Factors: MathTools 317</p>
<p>12.6 Data Presentation and Excel Interop 319</p>
<p>12.7 Bond Data Management 321</p>
<p>12.8 Using the Excel Files 324</p>
<p>12.9 Summary and Conclusions 328</p>
<p>12.10 Exercises and Projects 328</p>
<p>13 Interpolation Methods in Interest Rate Applications 335</p>
<p>13.1 Introduction and Objectives 335</p>
<p>13.2 Interpolation and Curve Building: Basic Formula for Interpolator Tests 335</p>
<p>13.3 Types of Curve Shape 337</p>
<p>13.4 An Overview of Interpolators 338</p>
<p>13.5 Background to Interpolation 339</p>
<p>13.6 Approximation of Function Derivatives 341</p>
<p>13.7 Linear and Cubic Spline Interpolation 342</p>
<p>13.8 Positivity–preserving Cubic Interpolations: Dougherty/Hyman and Hussein 344</p>
<p>13.9 The Akima Method 348</p>
<p>13.10 Hagan–West Approach 349</p>
<p>13.11 Global Interpolation 350</p>
<p>13.12 Bilinear Interpolation 352</p>
<p>13.13 Some General Guidelines, Hints and Tips 355</p>
<p>13.14 Using the Interpolators and Test Examples 357</p>
<p>13.15 Summary and Conclusions 367</p>
<p>13.16 Exercises and Projects 367</p>
<p>14 Short Term Interest Rate (STIR) Futures and Options 369</p>
<p>14.1 Introduction and Objectives 369</p>
<p>14.2 An Overview of Cash Money Markets 370</p>
<p>14.3 Sources of Risk in Money Market Transactions 370</p>
<p>14.4 Reference Rate and Fixings 371</p>
<p>14.5 STIR Futures 371</p>
<p>14.6 Pricing STIR Options 374</p>
<p>14.7 Generating International Monetary Market (IMM) Dates 378</p>
<p>14.8 List STIR Futures and STIR Futures Options 384</p>
<p>14.9 Putting It All Together: STIR versus OTC from a Trader s Perspective 387</p>
<p>14.10 Summary and Conclusions 389</p>
<p>14.11 Exercises and Projects 389</p>
<p>15 Single–curve Building 393</p>
<p>15.1 Introduction and Objectives 393</p>
<p>15.2 Starting Definitions and Overview of Curve Building Process 393</p>
<p>15.3 Building Blocks 395</p>
<p>15.4 Introduction to Interest Rate Swap 397</p>
<p>15.5 The Curve Construction Mechanism 403</p>
<p>15.6 Code Design and Implementation 406</p>
<p>15.7 Console Examples 418</p>
<p>15.8 Summary and Conclusions 426</p>
<p>15.9 Exercises and Projects 427</p>
<p>15.10 Appendix: Types of Swaps 429</p>
<p>16 Multi–curve Building 431</p>
<p>16.1 Introduction and Objectives 431</p>
<p>16.2 The Consequences of the Crisis on Interest Rate Derivatives Valuation 431</p>
<p>16.3 Impact of Using OIS Discounting 436</p>
<p>16.4 The Bootstrapping Process Using Two Curves: Description of the Mechanism 437</p>
<p>16.5 Sensitivities 438</p>
<p>16.6 How to Organise the Code: A Possible Solution 439</p>
<p>16.7 Putting it Together, Working Examples 445</p>
<p>16.8 Summary and Conclusions 453</p>
<p>16.9 Exercises and Projects 453</p>
<p>16.10 Appendix: Par Asset Swap Spread and Zero Volatility Spread 455</p>
<p>17 Swaption, Cap and Floor 459</p>
<p>17.1 Introduction and Objectives: A Closed Formula World 459</p>
<p>17.2 Description of Instruments and Formulae 459</p>
<p>17.3 Multi–curve Framework on Cap, Floor and Swaption 467</p>
<p>17.4 Bootstrapping Volatility for Cap and Floor 469</p>
<p>17.5 How to Organise the Code in C#: A Possible Solution 474</p>
<p>17.6 Console and Excel Working Examples 481</p>
<p>17.7 Summary and Conclusions 490</p>
<p>17.8 Exercise and Discussion 491</p>
<p>18 Software Architectures and Patterns for Pricing Applications 493</p>
<p>18.1 Introduction and Objectives 493</p>
<p>18.2 An Overview of the GOF Pattern 494</p>
<p>18.3 Creational Patterns 496</p>
<p>18.4 Builder Pattern 496</p>
<p>18.5 Structural Patterns 499</p>
<p>18.6 Behavioural Patterns 500</p>
<p>18.7 Builder Application Example: Calibration Algorithms for Cap and Floor 502</p>
<p>18.8 A PDE/FDM Patterns–based Framework for Equity Options 504</p>
<p>18.9 Using Delegates to Implement Behavioural Design Patterns 509</p>
<p>18.10 A System Design for Monte Carlo Applications 510</p>
<p>18.11 Dynamic Programming in .NET 513</p>
<p>18.12 Summary and Conclusions 516</p>
<p>18.13 Exercises and Projects 517</p>
<p>19 LINQ (Language Integrated Query) and Fixed Income Applications 523</p>
<p>19.1 Introduction and Objectives 523</p>
<p>19.2 Scope of Chapter and Prerequisites 523</p>
<p>19.3 LINQ Query Operators 524</p>
<p>19.4 LINQ Queries and Initial Examples 526</p>
<p>19.5 Advanced Queries 531</p>
<p>19.6 A Numerical Example 533</p>
<p>19.7 Join and GroupJoin 535</p>
<p>19.8 Examples in Fixed Income Applications 540</p>
<p>19.9 LINQ and Excel Interoperability 549</p>
<p>19.10 Summary and Conclusions 557</p>
<p>19.11 Exercises and Projects 557</p>
<p>20 Introduction to C# and Excel Integration 561</p>
<p>20.1 Introduction and Objectives 561</p>
<p>20.2 Excel Object Model 561</p>
<p>20.3 Using COM Technology in .NET 561</p>
<p>20.4 Primary Interop Assemblies (PIA) 563</p>
<p>20.5 Standalone Applications 564</p>
<p>20.6 Types of Excel Add–ins 566</p>
<p>20.7 The IDTExtensibility2 Interface and COM/.NET Interoperability 569</p>
<p>20.8 Data Visualisation in Excel 570</p>
<p>20.9 Conclusion and Summary 578</p>
<p>20.10 Exercises and Projects 579</p>
<p>21 Excel Automation Add–ins 581</p>
<p>21.1 Introduction and Objectives 581</p>
<p>21.2 COM Overview 581</p>
<p>21.3 Creating Automation Add–ins: The Steps 583</p>
<p>21.4 Example: Creating a Calculator, Version 1 585</p>
<p>21.5 Example: Creating a Calculator, Version 2 588</p>
<p>21.6 Versioning 590</p>
<p>21.7 Working with Ranges 590</p>
<p>21.8 Volatile Methods 590</p>
<p>21.9 Optional Parameters 591</p>
<p>21.10 Using VBA with Automation Add–ins 592</p>
<p>21.11 Summary and Conclusions 593</p>
<p>21.12 Exercises and Projects 594</p>
<p>22 C# and Excel Integration COM Add–ins 595</p>
<p>22.1 Introduction and Objectives 595</p>
<p>22.2 Preparations for COM Add–ins 595</p>
<p>22.3 The Interface IDTExtensibility2 596</p>
<p>22.4 Creating COM Add–ins: The Steps 596</p>
<p>22.5 Utility Code and Classes 597</p>
<p>22.6 Using Windows Forms 600</p>
<p>22.7 Example: Creating a COM Add–in 601</p>
<p>22.8 Debugging and Troubleshooting 603</p>
<p>22.9 An Introduction to Excel–DNA 603</p>
<p>22.10 Excel COM Interoperability and Rate Multi–curve 615</p>
<p>22.11 Conclusion and Summary 622</p>
<p>22.12 Exercises and Projects 622</p>
<p>23 Real–time Data (RTD) Server 625</p>
<p>23.1 Introduction and Objectives 625</p>
<p>23.2 Real–time Data in Excel: Overview 625</p>
<p>23.3 Real–time Data Function 626</p>
<p>23.4 Example 627</p>
<p>23.5 The Topic Class and Data 629</p>
<p>23.6 Creating an RTD Server 631</p>
<p>23.7 Using the RTD Server 631</p>
<p>23.8 Testing and Troubleshooting the RTD Server 632</p>
<p>23.9 Conclusion and Summary 632</p>
<p>23.10 Exercises and Projects 632</p>
<p>24 Introduction to Multi–threading in C# 635</p>
<p>24.1 Introduction and Objectives 635</p>
<p>24.2 Processes 636</p>
<p>24.3 Using ProcessStartInfo to Redirect Process I/O 637</p>
<p>24.4 An Introduction to Threads in C# 638</p>
<p>24.5 Passing Data to a Thread and between Threads 641</p>
<p>24.6 Thread States and Thread Lifecycle 644</p>
<p>24.7 Thread Priority 650</p>
<p>24.8 Thread Pooling 651</p>
<p>24.9 Atomic Operations and the Interlocked Class 652</p>
<p>24.10 Exception Handling 653</p>
<p>24.11 Multi–threaded Data Structures 654</p>
<p>24.12 A Simple Example of Traditional Multi–threading 659</p>
<p>24.13 Summary and Conclusions 661</p>
<p>24.14 Exercises and Projects 661</p>
<p>25 Advanced Multi–threading in C# 665</p>
<p>25.1 Introduction and Objectives 665</p>
<p>25.2 Thread Safety 666</p>
<p>25.3 Locking Mechanisms for Objects and Classes 667</p>
<p>25.4 Mutex and Semaphore 673</p>
<p>25.5 Notification and Signalling 676</p>
<p>25.6 Asynchronous Delegates 679</p>
<p>25.7 Synchronising Collections 681</p>
<p>25.8 Timers 682</p>
<p>25.9 Foreground and Background Threads 684</p>
<p>25.10 Executing Operations on Separate Threads: the BackgroundWorker Class 685</p>
<p>25.11 Parallel Programming in .NET 687</p>
<p>25.12 Task Parallel Library (TPL) 691</p>
<p>25.13 Concurrent Data Structures 694</p>
<p>25.14 Exception Handling 701</p>
<p>25.15 Shifting Curves 702</p>
<p>25.16 Summary and Conclusions 704</p>
<p>25.17 Exercises and Projects 704</p>
<p>26 Creating Multi–threaded and Parallel Applications for Computational Finance 707</p>
<p>26.1 Introduction and Objectives 707</p>
<p>26.2 Multi–threaded and Parallel Applications for Computational Finance 707</p>
<p>26.3 Fork and Join Pattern 709</p>
<p>26.4 Geometric Decomposition 711</p>
<p>26.5 Shared Data and Reader/Writer Locks: Multiple Readers and Multiple Writers 715</p>
<p>26.6 Monte Carlo Option Pricing and the Producer Consumer Pattern 719</p>
<p>26.7 The StopWatch Class 726</p>
<p>26.8 Garbage Collection and Disposal 727</p>
<p>26.9 Summary and Conclusions 730</p>
<p>26.10 Exercises and Projects 730</p>
<p>A1 Object–oriented Fundamentals 735</p>
<p>A2 Nonlinear Least–squares Minimisation 751</p>
<p>A3 The Mathematical Background to the Alternating Direction Explicit (ADE) Method 765</p>
<p>A4 Cap, Floor and Swaption Using Excel–DNA 789</p>
<p>Bibliography 805</p>
<p>Web References 812</p>
<p>Index 815</p>