Finance Computing Projects - Dec 7 Second and final Quiz on MMM Requirements questions answered Final instructor evaluation Class feedback: How could this course be improved? Questions/help with project

Comparing Market and Credit Risk Credit - “What happens if the counterparty/issuer with my money doesn’t pay it back?” Loss Given Default: Expected Loss = Probability of Default * Loss Given Default This data is published from ratings agencies or it is derived internally Ratings downgrades Scenarios - a common one is “JTD” (jump to default) Notional (Amount) - also known as “Current Exposure” for unsettled trades Others: Potential exposure - future worst case Market - “How does the value of my book change as prevailing rates change?” Interest rate sensitivity - our first order measure DV01 Scenario shifts - more extreme than instantaneous measure Notional (Amount) Others: VaR

Requirements for Front End V2 Static reports (won’t need to be re-run with a new user-supplied yield curve) Day-over-day change (see spreadsheet story-board) Total Notional Amount (aka “notional”), Risk and LGD aggregated by: “Quality” - only show for codes that exist in the portfolio (not a sparse array) “Issuer” - use ticker to identify issuer Two separate data.txt files will be provided (“day_1.txt” and “day_2.txt”). In the meantime, to test you can create your own (just make a copy and change the amounts). Your executable will now take a second book-file parameter. When not doing the day-over-day analysis, you may want to parameterize your main to unnecessarily loading the second data file (count argc). Or, you may want to have two different special purpose instances of your executable Finally, two things can change between day 1 and day 2: Amount and Rating!

Requirements for Front End V2 (cont) This “maturity band” report can be re-run with a new user-specified yield curve Risk (e.g., dv01) and Market Value by maturity band: Maturity buckets defined as: 0-2yr, 2-5yr, 5-10yr, 10-30yr inclusive Grouping by “remaining term” of the bond (years between settle and maturity) is more extensible Can also sort on number of periods (since we always assume even periods) First calculate the total dv01 for each of the 4 buckets making up the total book as we have before Second, calculate the dv01 of the 2 year (ticker “T2”) Solve for and display the Amount of 2 year treasuries (T2 in file) to hedge the risk in each mat bucket bucket dv01 * bucket amount = T2 dv01 * T2 Amount One way group by maturity is to assign a benchmark treasury to every bond in the portfolio (whether it is spread or yield priced) and group by ticker (T2, T5, T10, T30). User input : User should be able to re-run maturity band report (not the day over day change report) with shifted inputs: Yield curve parallel up and down by 50% (of starting yield curve yields) User entered spreads (in basis points) at each point (to support ad-hoc, non-parallel shifts) It is required is to display data in tabular form however: It is desirable to also display in graphical form where possible. e.g, pie, bar, clustered column chart… Solve for Amount:

Requirements for Front End V2 (Assumptions) Simplifying Assumptions: Given we are assuming all periods are equal: No partial periods, thus no day count conventions apply Settlement date (and maturity) always fall on a coupon anniversary The “day 2” data file will have the same settlement date as the “day 1” data file in order to keep the remaining term constant. In reality as soon as a bond is issued it starts to age and settlement data marches forward daily, shortening the remaining term of the bond Another place where this applies is with the yield curve: For us yield curve has “constant maturity” yields New positions can not be added on day 2 (only existing positions from day 1 can change) Filenames for data and yield curve info will not change (they can be hard-coded in DLLs)

Deliverables for Final Install package:.tar (as before) - including makefile, README, etc. Your main is now your also test driver (to simulate calls from the client side) Include unit or regression test code along with your main Parameterize your main to handle the cases required to support the GUI as well as any unit or regression testing Include the client side code (or excel file) in the UNIX.tar I will not grade the user handling part of the client side code but may need to refer to it I will examine your main to see how you unit/regression tested your server-side (should map closely to what your GUI needs). Presentation/demo I will provide new data files (day1_data.txt, day2_data.txt and yieldcurve.txt) to be used during the presentation before the weekend. The only changes I will make during the demo is to the yield curve inputs! You should already be testing your code with data files of your own…

Requirements for Presentation Architecture: Description of: Server-side capabilities Client-side capabilities How is logic partitioned between server and client side? GUI technology choice rationale “Middleware” protocol Challenges faced during implementation How was the work partitioned within the team? Demonstrate the front end What questions does the app help the user answer? Clear description of how to install it, build it and use it Walk through test-driver of the server side (a requirement!) I will drive after the presentation is given and ask questions interactively