Software Nightmares

人非圣贤孰能,,en,但要真正把事情搞砸,,en,你需要一台电脑,,en,因此,规定的非常有见地的墨菲定律,,en,和无处这是否环比我国金融工作场所更真实,,en,它是金融部门的推动计算行业的快速发展,,en,这就是为什么第一计算巨头有字,,en,在其名称,,en,金融业保持了在计算机行业的发展,原因很简单,,en,更强的计算机和更智能的程序意味着更多的钱,,en,一个概念,我们随手一抓,,en,当我们使用计算机技术的最新和最伟大的,倒钱进去,,en,我们推动计算机领域的进一步发展,,en,我们不仅启动消防,,en,我们积极风扇一样好,,en,但它不是一个坏的火,,en, but to really foul things up, you need a computer. So states the remarkably insightful Murphy’s Law. And nowhere else does this ring truer than in our financial workplace. 毕竟, it is the financial sector that drove the rapid progress in the computing industry — which is why the first computing giant had the word “business” in its name.

The financial industry keeps up with the developments in the computer industry for one simple reason. Stronger computers and smarter programs mean more money — a concept we readily grasp. As we use the latest and greatest in computer technology and pour money into it, we fuel further developments in the computing field. 换句话说, not only did we start the fire, we actively fan it as well. But it is not a bad fire; 我们帮助建立了正反馈回路一直担任这两个行业以及,,en,这种相互依存,,en,健康的,因为它是,,en,为我们提供了完美的风暴和严重后果的恶梦般的愿景,,en,计算机是完美的工具,完全堵塞的事情了,,en,我们令人不安的恶梦比我们愿意承认的更合理,,en,型号VS,,en,系统,,en,复述一个致命的说法,有些枪迷使,,en,我将保卫我们的瘾对信息技术,,en,计算机不把事情搞砸,,en,人做,,en,我不是暗示我们总是搞砸了,当我们部署的计算机,,en,我们试图与我们现有流程按摩到他们的电脑同行,,en,创建多个故障点,,en,正确的方法,,en,往往是重新设计流程,以便他们可以利用技术优势,,en.

This inter-dependency, healthy as it is, gives us nightmarish visions of perfect storms and dire consequences. Computers being the perfect tools for completely fouling things up, our troubling nightmares are more justified than we care to admit.

Models vs. Systems

Paraphrasing a deadly argument that some gun aficionados make, I will defend our addiction to information technology. Computers don’t foul things up; people do.

你要知道, I am not implying that we always mess it up when we deploy computers. 但有时, we try to massage our existing processes into their computerised counterparts, creating multiple points of failure. The right approach, 代替, is often to redesign the processes so that they can take advantage of the technology. 但是,谈何容易,,en,要知道为什么,,en,我们必须超越系统和流程,注重人的因素,,en,在金融机构,,en,我们是在赚钱的生意,,en,我们微调以这样的方式,我们的奖励结构我们的核心业务,,en,赚钱,,en,如运行顺利地,,en,平稳运行依赖于严格遵守流程和底层的政策他们实施,,en,在这种刚性结构,,en,还有一点余地富有远见的创新,,en,这种结构缺乏激励创新的工作人员项成果通过了新的系统部署或流程再造匆匆,,en,他们有充足的时间既不奢侈,也不是自由的可怕的懈怠,,en,照常营业,,en,做这样一个彻底的工作,,en,非必需,,en,事,,en. To see why, we have to look beyond systems and processes and focus on the human factors.

In a financial institution, we are in the business of making money. We fine-tune our reward structure in such a way that our core business (of making money, 就是说) runs as smoothly as possible. Smooth operation relies on strict adherence to processes and the underlying policies they implement. In this rigid structure, there is little room for visionary innovation.

This structural lack of incentive to innovate results in staff hurrying through a new system rollout or a process re-engineering. They have neither the luxury of time nor the freedom to slack off in the dreaded “business-as-usual” to do a thorough job of such “non-essential” things.

除了, 里面很少有任何未使用的人力资源在研究和改进流程,使他们能够更好地利用技术来部署,,en,做到这一点需要谁的人拥有多面的能力,,en,商务和计算,,en,作为昂贵,,en,他们更优化部署在赚更多的钱的核心业务,,en,想想吧,,en,当是你最后一次,,en,或您认识,,en,被雇佣修补系统和相关流程,,en,你得到的最接近的是,当有人雇用复制已经知晓,以便更好地在其他地方工作的系统,,en,在思想的缺乏缺乏激励效果和护理投资于技术的优化利用,,en,次优系统,,en,其中一件事做好,在一切的费用,,en,比比皆是,在我们的工作场所,,en. People who do it need to have multi-facetted capabilities (business and computing, 例如). Being costly, they are much more optimally deployed in the core business of making more money.

Think about it, when is the last time you (or someone you know) got hired to revamp a system and the associated processes? The closest you get is when someone is hired to duplicate a system that is already known to work better elsewhere.

The lack of incentive results in a dearth of thought and care invested in the optimal use of technology. Suboptimal systems (which do one thing well at the cost of everything else) abound in our workplace. In time, 我们会达到一个地步,我们不得不硬着头皮重新设计这些系统,,en,当重新设计一个系统,,en,我们必须考虑所涉及的所有进程,,en,我们必须考虑系统而设计或重新设计流程,,en,这种循环依赖是这篇文章的主题,,en,系统不会在一个定量的杀到图,,en,什么对我们而言更多的是我们最强的增值服务,,en,即数学建模,,en,为了拿出了模型的最佳部署策略,,en,我们需要注意的贸易一样工作流程操作问题,,en,我是说有一天我们的顶级交易商之一,,en,他提到,定量,,en,无论多么聪明,,en,是无用的,除非他的工作可以有效地和及时地部署,,en. When redesigning a system, we have to think about all the processes involved. And we have to think about the system while designing or redesigning processes. This cyclic dependence is the theme of this article.

Systems do not figure in a quant’s immediate concern. What concerns us more is our strongest value-add, namely mathematical modelling. In order to come up with an optimal deployment strategy for models, 然而,, we need to pay attention to operational issues like trade workflow.

I was talking to one of our top traders the other day, and he mentioned that a quant, no matter how smart, is useless unless his work can be deployed effectively and in a timely manner. 一个定量通常提供他的工作作为一个C 程序,,en,在快速部署方案,,en,他的计划将不得不直接插入,将管理贸易订票系统,,en,风险测量,,en,操作和结算,,en,对于定量分析师,了解交易周期和业务运营的需要快速部署使得有必要,,en,一旦定量计算出如何定价新产品,,en,他的工作基本上完成了,,en,哄那个随机积分入定价公式后,,en,否则这,,en,曲柄尼克尔森或蒙特卡罗,,en,在定量写了一个程序,并移动到下一个挑战,,en,这是当交易台拿起定价电子表格和书籍的第一贸易成有趣的开始系统,,en,然后贸易呈现了自己的生命,,en. In a rapid deployment scenario, his program will have to plug directly into a system that will manage trade booking, risk measurements, operations and settlement. The need for rapid deployment makes it essential for the quants to understand the trade lifecycle and business operations.


Once a quant figures out how to price a new product, his work is basically done. After coaxing that stochastic integral into a pricing formula (failing which, a Crank-Nicholson or Monte Carlo), the quant writes up a program and moves on to the next challenge.

It is when the trading desk picks up the pricing spreadsheet and books the first trade into the system that the fun begins. Then the trade takes on a life of its own, 通过各部门,各系统偷跑,,en,示出不同的招不同的人,,en,这种冒险交易的传记描述于图,,en,在其简化形式,,en,在开始阶段,,,en,贸易是由前厅乡亲概念化,,en,交易台,,en,在图中椭圆黄色所示,,en,他们研究市场需求和潜力,,en,并评估交易可行性,,en,一旦他们看到并抓住市场机遇,,en,交易诞生,,en,即使有最好的定量模型,,en,交易无法进行定价没有市场数据,,en,例如价格,,en,率和相关性等,,en,市场数据的有效性是通过产品控制或市场风险的人保证,,en,数据管理组还需要与信息技术紧密合作,,en,它,,en,确保实时数据馈送,,en, showing different strokes to different folks. This adventurous biography of the trade is depicted in Figure 1 in its simplified form.

At the inception stage, a trade is conceptualized by the Front Office folks (销售, 结构, trading desk – shown in yellow ovals in the figure). They study the market need and potential, and assess the trade viability. Once they see and grab a market opportunity, a trade is born.

Fig. 1: Life of a Trade

Even with the best of quant models, a trade cannot be priced without market data, such as prices, volatilities, rates and correlations and so on. The validity of the market data is ensured by Product Control or Market Risk people. The data management group also needs to work closely with Information Technology (IT) to ensure live data feeds.

贸易第一无二交易对手信用控制,,en,粉红色的气泡,,en,信用控制器问这样的问题,,en,如果我们做了这笔交易,,en,多少会对手最终由于我们,,en,请问对方有足够的信用留下来从事这个交易,,en,由于信贷风险行业的生命周期中的变化,,en,这本身就是一个小的定量计算,,en,前厅可以做这笔交易的是信用控制批准后,才,,en,信用风险的乡亲用历史数据,,en,内部和外部信用评级系统,,en,并拿出了对手的信用限额和每笔交易的最大和网纹暴露自己的量化建模团队,,en,右边的贸易预订成功后,,en,它会通过中东办事处的一些控制检查,,en,这些人精核实交易细节,,en (the pink bubbles). The credit controllers ask questions like: if we go ahead with the deal, how much will the counterparty end up owing us? Does the counterparty have enough credit left to engage in this deal? Since the credit exposure changes during the life cycle of the trade, this is a minor quant calculation on its own.

原则, the Front Office can do the deal only after the credit control approves of it. Credit Risk folks use historical data, internal and external credit rating systems, and their own quantitative modelling team to come up with counterparty credit limits and maximum per trade and netted exposures.

Right after the trade is booked, it goes through some control checks by the Middle Office. These fine people verify the trade details, 验证初始定价,,en,适用于一些合理的储备对前厅的疯狂利润索赔,,en,并且当它被黄牌警告用一个简单的推倒或反对票的贸易上来,,en,如果他们说是的,,en,交易被认为是有效的和积极的,,en,贸易追溯到办公桌修改,,en,这些活动开始后,,,en,交易通过他们日常处理,,en,除了日常,,en,或日内,,en,在前厅对冲再平衡,,en,市场风险管理人们纪念他们的图书市场,,en,他们还需要遵守照顾到监管机构报告,,en,以及向上层管理风险报告,,en,有深远影响的过程,,en,风险管理乡亲,,en,他们的工作是从来没有做过的特蕾西查普曼会说,,en,还执行情况,,en,压力测试和在风险历史价值,,en,计算,,en, apply some reasonable reserves against the insane profit claims of the Front Office, and come up with a simple yea or nay to the trade as it is booked. If they say yes, the trade is considered validated and active. 如果没有, the trade goes back to the desk for modifications.

After these inception activities, trades go through their daily processing. In addition to the daily (or intra-day) hedge rebalancing in the Front Office, the Market Risk Management folks mark their books to market. They also take care of compliance reporting to regulatory bodies, as well as risk reporting to the upper management — a process that has far-reaching consequences.

The Risk Management folks, whose work is never done as Tracy Chapman would say, also perform scenario, stress-test and historical Value at Risk (风险价值) computations. 在压力测试,,en,他们申请发生在过去的那种激烈的市场运动,,en,像亚洲货币危机或,,en,目前的市场数据,并估计在银行的账面运动,,en,在历史的VaR,,en,他们运用市场走势在刚过去,,en,通常去年,,en,并找出,,en,百分,,en,或一些这样的预先确定的数,,en,损失最严重的情况,,en,这种分析是对高级管理人员和监管和合规报告极为重要,,en,风险管理乡亲的活动,蓝色的气泡被描述,,en,在他们的努力在热情洋溢的商人收服,,en,风险管理的乡亲在他们的对抗最差遇到,,en,但是,我们必须提醒自己的交易和控制过程是这样设计的,,en, they apply a drastic market movement of the kind that took place in the past (like the Asian currency crisis or 9/11) to the current market data and estimate the movement in the bank’s book. In historical VaR, they apply the market movements in the immediate past (typically last year) and figure out the 99 percentile (or some such pre-determined number) worst loss scenario. Such analysis is of enormous importance to the senior management and in regulatory and compliance reporting. In Figure 1, the activities of the Risk Management folks are depicted in blue bubbles.

In their attempts to rein in the ebullient traders, the Risk Management folks come across in their adversarial worst. But we have to remind ourselves that the trading and control processes are designed that way. 它是风险承担者之间的冲突不断,,en,和风险控制器,,en,风险管理,,en,实现了银行的风险偏好由上级管理部门决定,,en,该仰卧起坐,每天的交易数量从稍微不同的角度来看另一组是产品控制人,,en,在绿色如图,,en,他们担心日常损益,,en,无论是在贸易和投资水平运动,,en,他们还通过储备机制的调节由前厅利润索赔,并拿出所谓的未实现P / L,,en,此P / L,,en,未实现的,因为它是,,en,在短期内对前厅的补偿和激励结构有直接影响,,en,因此,在储备水平常年争斗,,en,在长期,,en (前台) and the risk controllers (Risk Management) that implements the risk appetite of the bank as decided by the upper management.

Another group that crunches the trade numbers every day from a slightly different perspective are the Product Control folks, shown in green in Figure 1. They worry about the daily profit and loss (盈/亏) movements both at trade and portfolio level. They also modulate the profit claims by the Front Office through a reserving mechanism and come up with the so called unrealized P/L.

This P/L, unrealized as it is, has a direct impact on the compensation and incentive structure of Front Office in the short run. Hence the perennial tussle over the reserve levels. In the long term, 然而,, 贸易结算得到和P / L变得意识到,没有人认为在它,,en,一旦交易是在成熟阶段,,en,它是资助那些担心统计数据和现金流,,en,他们的宏伟蓝图在年度报告和利益相关者会议结束,,en,从我们的奖金给CEO的新湾流影响的一切,,en,交易不是静态的实体,,en,在他们的生命历程,,en,它们进化,,en,它们的进化通常是由中东办事处的人来处理,,en,灰色泡沫,,en,谁担心贸易的修改,,en,定价,,en,敲插件,,en,敲除等,,en,给这个业务单元的确切名称,,en,和上面描述的确其它单元,,en,取决于我们工作的金融机构,,en,但贸易流程大致相同,,en,我到目前为止所描述的贸易流量应敲响警钟的定量心脏,,en. Once the trade is in the maturity phase, it is Finance that worries about statistics and cash flows. Their big picture view ends up in annual reports and stake holders meetings, and influences everything from our bonus to the CEO’s new Gulfstream.

Trades are not static entities. During the course of their life, they evolve. Their evolution is typically handled by Middle Office people (grey bubbles) who worry about trade modifications, fixings, knock-ins, knock-outs etc. The exact name given to this business unit (and indeed other units described above) depends on the financial institution we work in, but the trade flow is roughly the same.

The trade flow that I described so far should ring alarm bells in a quant heart. 凡在这个价值链上的宽客,,en,它们都隐藏在几个地方,,en,他们中有些人找到回家的市场风险管理,,en,验证定价模型,,en,有些人可能生活在信用风险,,en,估计峰值曝光,,en,搞清楚评价方案,并最大限度地减少资本支出,,en,最重要的是,,en,他们找到自己的位置前的贸易日益预订,,en,宽客教他们家的银行如何定价的产品,,en,金融机构不能仓库的风险有,除非它知道有问题的产品有多少是值得一贸易有关,,en,正是在这个关键的意义上,金融工程师的模型驱动业务,,en,在金融市场上是定制的结构和解决方案越来越饿,,en,宽客中的作用,已经成为几乎无法忍受至关重要,,en? 好, they are hidden in a couple of places. Some of them find home in the Market Risk Management, validating pricing models. Some others may live in Credit Risk, estimating peak exposures, figuring out rating schemes and minimising capital charges.

Most important of all, they find their place before a trade is ever booked. Quants teach their home banks how to price products. A financial institution cannot warehouse the risk associated with a trade unless it knows how much the product in question is worth. It is in this crucial sense that model quants drive the business.

In a financial marketplace that is increasingly hungry for customized structures and solutions, the role of the quants has become almost unbearably vital. 除了需要有创新的模式来的稳健平台的迫切需要推出他们及时捕捉瞬间的市场机会,,en,在我们更好的投资银行,,en,这样的平台在内部构建,,en,自力更生这种趋势是不难理解的,,en,如果我们使用一个通用的交易平台从供应商,,en,它可用于建立运作良好,,en,阅读香草,,en,它可以处理的既定程序,,en,阅读合规,,en,定居点,,en,审计跟踪等。,,en,但是,我们应该做些什么,当我们需要的价格了前所未有的结构,,en,我们可以要求供应商去发展它,,en,他们将需要很长的时间来响应,,en,当他们终于做,,en,他们将其出售给我们所有的竞争对手,,en,或者我们收取一只胳膊和排他性一条腿从而消除任何相关的潜在利润,,en.

In our better investment banks, such platforms are built in-house. This trend towards self-reliance is not hard to understand. If we use a generic trading platform from a vendor, it may work well for established (read vanilla) products. It may handle the established processes (read compliance, reporting, settlements, audit trails etc.) 好. But what do we do when we need a hitherto unknown structure priced? We could ask the vendor to develop it. 但随后, they will take a long time to respond. 和, when they finally do, they will sell it to all our competitors, or charge us an arm and a leg for exclusivity thereby eradicating any associated profit potential.

一旦贩卖溶液是假表,,en,我们只剩下开发内部系统的更精彩的选择,,en,这是当我们设计了一个内部系统,我们需要欣赏大图,,en,我们需要理解通过不同的业务部门和流程的整个贸易流程以及相关的销售前景,,en,这是最常见的,这些天的观点是贸易中心,,en,交易是主要对象,,en,这就是为什么传统的交易系统,跟踪它们的,,en,但是,贸易中心的观点仅是一种妥协,,en,每个视图都有其在物联网在银行更大的作用机制,,en,是模型为中心,,en,他们试图找到各种产品之间的通用性在基础数学方面,,en,如果他们可以从一个产品的再利用他们的模型到另一个,,en, we are left with the more exciting option of developing in-house system. It is when we design an in-house system that we need to appreciate the big picture. We will need to understand the whole trade flow through the different business units and processes as well as the associated trade perspectives.


The perspective that is most common these days is trade-centric. 在此视图中, trades are the primary objects, which is why conventional trading systems keep track of them. 把一堆行业一起, 你的投资组合. 放了几个组合在一起, 你有一本书. 整个全球市场的书籍仅仅是一个集合. 这一模式一直行之有效,可能是不同的可能视图之间的最佳平衡.

But the trade-centric perspective is only a compromise. 交易大厅的活动,可以从不同的角度观看. Each view has its role in the bigger scheme of things in the bank. 如何, 例如, are model-centric. They try to find commonality between various products in terms of the underlying mathematics. If they can reuse their models from one product to another, 潜在的资产类别,,en,他们尽量减少他们所需要的努力,,en,记住默顿如何看待整个世界的选择,,en,我吃惊地听他一次当他从复合期权的风险状况说明了亚洲货币危机的起源,,en,银行担保,企业客户正在认沽期权,,en,政府担保向银行被提上看跌期权期权,,en,不同于定量分析师谁开发定价模型,,en,定量开发商往往以产品为中心,,en,没关系,即使两种不同的产品使用非常相似的机型太多,,en,他们可能仍然需要编写单独的代码为他们依赖于基础设施,,en,市场数据,,en,公约等,,en,交易商看到他们的世界从资产类别角度,,en,他们最喜欢的视图跨越模式和产品切割,,en, they minimize the effort required of them. Remember how Merton views the whole world as options! I listened to him in amazement once when he explained the Asian currency crisis as originating from the risk profile of compound options — the bank guarantees to corporate clients being put options, government guarantees to banks being put options on put options.

Unlike quants who develop pricing models, quantitative developers tend to be product-centric. 对他们来说,, it doesn’t matter too much even if two different products use very similar models. They may still have to write separate code for them depending on the infrastructure, market data, conventions etc.

Traders see their world from the asset class angle. 根据资产类别与特定交易部门通常是相关联, their favourite view cuts across models and products. 贸易商, 所有产品和模型只是一种工具,以营利,,en,IT人员从完全不同的角度来看待世界贸易,,en,其中使用出现在两​​个不同的系统相同的模型相同的产品基本上是两个不同的兽,,en,一种观点认为我们所有的人欣赏的是高级管理人员的看法,,en,模型和交易通常不是从他们的观点可见,,en,有点不太可能,,en,这使得使用同样的招数暴利,,en,当交易达到市场风险乡亲,,en,交易系统必须保持强大的分层组合结构,因此在交易周期的后期阶段所需的各种切割和切片可以自然缓解处理,,en,中东办公室忙人,,en,谁照顾贸易验证和修改,,en.

IT folks view the trading world from a completely different perspective. 他们是一个系统为中心的视图, where the same product using the same model appearing in two different systems is basically two different beasts. 这种观点并不特别贸易商赞赏, 或者有多少开发者.

One view that all of us appreciate is the view of the senior management, 这是狭义集中于底线. 大老板可以优先事 (无论是产品, 资产类别或系统) 在金钱方面,他们带给股东. Models and trades are typically not visible from their view — 除非, 当然, 流氓交易员对某一特定产品或使用特定模型输了很多钱. 或, somewhat less likely, they make huge profits using the same tricks.

When the trade reaches the Market Risk folks, 有在透视了微妙的变化,从贸易层面来看,以投资组合或书平视图. 虽然数学琐碎 (毕竟, 所不同的是聚合的唯一的事), 这种变化在系统设计的影响. Trading systems have to maintain a robust hierarchical portfolio structure so that various dicing and slicing as required in the later stages of the trade lifecycle can be handled with natural ease.

The busy folks in the Middle Office (who take care of trade validations and modifications) 迷恋贸易队列,,en,他们有一个验证队列,,en,市场操作队列等,,en,使用状态标志队列的管理是我们必须牢记,同时设计了一个内部系统的东西,,en,当涉及到金融和他们的成本中心的概念,,en,他们管理交易部门和资产类别成本中心,,en,多少和大图片,,ca,鄙视大图片,,en,这种心态变化在一定程度上是本专栏的背后隐藏的议程,,en,正如我的朋友交易员会同意,,en,部署是快车道,以大图片,,en,没有一点否认,,en,在一个日益相互关联的世界里,一个疯狂的法国人的行动立即影响到我们的奖金,,en,有什么用否认我们的树林的角落大局的存在,,en. They have a validation queue, market operation queue etc. 同样, the management of queues using status flags is something we have to keep in mind while designing an in-house system.

When it comes to Finance and their notions of cost centres, 贸易是相当多了订票系统. 还, they manage trading desks and asset classes cost centres. 任何的交易平台,我们的设计必须提供足够的钩子在系统响应他们的具体要求,以及.

Quants and the Big Picture

最少数, 特别是在初级水平, despise the Big Picture. 他们认为它是从他们的实际结婚随机微积分到C的工作分心 . Changing that mindset to some degree is the hidden agenda behind this column.

As my trader friends will agree, 在世界上最好的模型是毫无价值的,除非它可以部署. Deployment is the fast track to the big picture — no point denying it. 除了, in an increasingly interconnected world where a crazy Frenchman’s actions instantly affect our bonus, what is the use of denying the existence of the big picture in our nook of the woods? 相反,, 让我们大画面的优势,充实我们自己,,en,让我们硬着头皮通过坐,,en,大图片101。,,en,我们将看到的系统和过程的故障的潜在点,,en,我们将与可能的解决方案做好准备,噩梦般的灾难计算机化过程可以发泄,,en,而且我们会更容易入睡,,en,墨菲定律,,en,贸易,,en. Let’s bite the bullet and sit through a “Big Picture 101.”

当我们改变我们的窄, 虽然有效, 专注于手头的工作,我们的作用,在组织的理解和价值, we will see the potential points of failure of the systems and processes. We will be prepared with possible solutions to the nightmarish havoc that computerized processes can wreak. And we will sleep easier.