Advanced.Quantitative.Finance.with.Cplusplus

Create and implement mathematical models in C++ using quantitative financeOverviewDescribes the key mathematical models used for price equity currency interest rates and credit derivativesThe complex models are explained step by step along with a flow chart of every implementationIllustratesAdvanced quantitative Finance with C++Copyright o 2014 Packt PublishiingAll rights reserved. No part of this book may be reproduced, stored in a retrievalsystem, or transmitted in any form or by any means, without the prior writtenpermission of the publisher, except in the case of brief quotations embedded incritical articles or reviewsrt has been made in the preparation of this book to ensure the accuracyof the information presented. However, the information contained in this book issold without warranty, cither express or implied. Neither the author nor PaclPublishing and its dealers and distributors will be held liable for any damagescaused or alleged to be caused directly or indirectly by this bookPackt Publishing has endeavored to provide trademark information about all of thecompanies and products mentioned in this book by the appropriate use of capitalsHowever, Packt Publishing cannot guarantee the accuracy of this informationFirst published June 2014Production reference 1180614Published by Packt Publishing LtdLivery place35 Livery StrectBirmingham b3 2PB, UKISBN978-1-78216-722-8www.packtpub.comCover image by VTR Ravi Kumar (vtrravikumarogmail. com)[FM2]CreditsAuthorProject CoordinatorAlonso pena Ph. DHarsha vedReviewersProofreaderMarco airoldiClyde JenkinsJoseph smidtGraphicsCommissioning EditorSheetal auteGrant mizenRonak dhruvValentina silvaAcquisition EditorDisha hariaHarsha bharwaniAbhinash SahuContent Development EditorIndexerAmit ghodakeHemangini BariTechnical EditorProduction coordinatorHumera shaikhKyle AlbuquerqueopyCover WorkLaxmi subramanianNilesh bambardekar[FM-3]About the authorAlonso pena, ph.D. is an sda professor at the sda bocconi school ofManagement in Milan. He has worked as a quantitative analyst in the structuredproducts group for Thomson Reuters Risk and for Unicredit Group in London andMilan. Ile holds a Ph D degree from the University of Cambridge on Finite elementAnalysis and the Certificate in Quantitative Finance( CQF) from 7city Learning, theU. K. He has lectured and supervised graduate and post-graduate students from theuniversities of Oxford, Cambridge, Bocconi, Bergamo, Pavia, Castellanza, and thePolitecnico di milano. His area of expertise is the pricing of financial derivatives, inparticular, structured productsHe has publications in the fields of Quantitative Finance, applied mathematics,neuroscience, and the history of science. He has been awarded the robert meloshMedal- first prize for the best student paper on finite element analysis, dukeUniversity, USA; and the Rouse Ball Travelling Studentship in Mathematics, TrinityCollege, Cambridge. He has been to the Santa Fe Institute, USA, to study complexsystems in social sciencesHis publications include the followingThe One Factor libor market Model using monte carlo simulationAn Empirical investigationOn the role of Behavioral Finance in the Pricing of Financial derivativesThe Case of the saP 500Option pricing with radial Basis Functions: A TutorialApplication of extrapolation processes to the finite element methodOn the role of mathematical Biology in Contemporary HistoriographyHe is currently working as a tutor for CQF(Fitch Learning) and a visiting faculty forthe Indian lnstitute for Quantitative Finance, mumbaiHe lives in Italy with his wife Marcella, his daughters Francesca and Isabel, and hisson marco[FM-4]AcknowledgmentsI would like to thank many people who have made this book a reality. First themagnificent support, enthusiasm, and patience of the entire team at Packt Publishing,particularly Harsha, Amit, Humera, and Harshal To Dr. Pattabi Raman(NumericalSolution(U.K )Ltd ) for his expert advice on C++. To Dr. Marco Airoldi for hisknowledgeable and detailed review of the book. To the sDa Bocconi school ofManagement including my colleagues and students from the MBa, graduate, andundergraduate courses. To the many persons i have been privileged to work withand to teach from the universities of cambridge, oxford bocconi liuc castellanzaBergamo, Pavia, and Politecnico di milano. The many extraordinary quants from theCertificate in Quantitative Finance, Fitch Learning, London, as well as from UnicreditGroup and Thomson Reuters. Finally, to my wife, Marcella, and my children,francesca, Isabel, and Marco-you all always remind me that The true voyage ofdiscovery consists not in seeking new landscapes but in having new eyes to see( Marcel Proust)[FM5]About the reviewerMarco airoldi received his Ph. D in Theoretical Condensed Matter Physics in 1995from the International School for Advanced Studies(SISSA). He moved definitivelyto finance in 1999. Marco has been chosen as the head of financial engineering in oneof the top financial institutions in ItalyHis expertise includes the Monte Carlo simulation for option pricing and pricingsystem architectures[FM-6Www.Packtpub.comSupport files, eBooks, discount offers, and moreYoumightwanttovisitwww.Packtpub.comforsupportfilesanddownloadsrelatedtoyour bookDid you know that packt offers e Book versions of every book published, with pdF andepubfilesavailableyoucanupgradetotheebookversionatwww.Packtpub.comandas a print book customer, you are entitled to a discount on the eBook copy. Get in touchwithusatservice@packtpub.comformoredetailsAtwww.packtpub.comyoucanalsoreadacollectionoffreetechnicalarticlessignupfor a range of free newsletters and receive exclusive discounts and offers on packt booksand e bookslPACKTLIB°http://packtliB.Packtpub.comDo you need instant solutions to your If questions? PacktLib is Packt's online digitalbook library. Here, you can access, read and search across Packt's entire library of booksWhy subscribe?Fully searchable across every book published by PacktCopy and paste, print and bookmark contentOn demand and accessible via web browserFree access for Packt account holdersIfyouhaveanaccountwithpacktatwww.PacktPubcomyoucanusethistoaccessPacktLib today and view nine entirely free books Simply use your login credentials forimmediate access[FM-7]Table of contentsPrefaceChapter 1: What is Quantitative Finance?Discipline 1-finance(financial derivatives)Discipline 2--mathematicsDiscipline 3-informatics(C++ programming)The Bento Box templateSummary5589022Chapter 2: Mathematical ModelsEquity13Foreign exchangeInterest rates20Short rate models20Market modelsCredit25Structural models26Intensity models28Summary31Chapter 3: Numerical Methods33The monte carlo simulation method34Algorithm of the mc method35Example of the Mc method37The Binomial trees method39Algorithm of the BT method39Example of the bt method42