Tag Archives: Wilmott

My columns published in the Wilmott Magazine – a well-known publication targeted at quantitative finance professionals.

Bir Ticaret Hayatı

son yazı ile, Biz ticari faaliyetlerde bankanın statik yapısına ikinci bölümün sonuna gelmiş. Ama tek başına bir ticaret dinamik bir varlıktır. bu üçüncü bölümde, Biz ticaret evrim bakacağız, ve son bölümde anlatılan çeşitli iş birimleri arasında ileri ve geri akar görmek nasıl. Biz bu bölümü ve birinci serinin nedeniyle mesajların yeni bir dizi haline gelecek yapacak (üzerinde Nasıl Bir Banka ÇALIŞIR?) biraz fazla uzun oldu.

Back Office and Finance

en dinamik varlıklar gibi, esnaf da başlangıçtan üç ömrü aşamaları var, varlığı ve sonlandırma. Ne biz açıkça anlamak gerekir süreçler bu genel aşamaları etrafında ne olduğunu. Bu aşamaların her birinde yer alan iş birimleri nelerdir? Onlar ne yapar? Ve bunu nasıl yapacağım?

Trade lifecycle

Bizim bakış açısıyla göreceksiniz, yaşam döngüsü etkileşimleri tüm ticaret platformu aracılık. Her şey ticaret platformu içinde yer çünkü o kadar fazla değil, ama biz sadece süreçlerin bu sınırlı sayıda ilgilenen çünkü. Bazı durumlarda, Son bölümde fiziksel oldu, bankanın mekansal açıklaması, ve bu bölümde şeyler bu yapı üzerinde çalışmak nasıl zamansal evrimi ve dinamikleri üzerinde olacak.

Özet – Bir Bankası'nın Yapısı

We have now completed our discussion on the general structure of a typical investment bank trading arm. We went through the Front-Middle-Back Office divisions and the functional and business units contained within. Note that we looked only at those units that have a bearing on trading and quantitative development activities. Note also that this structure is fluid and may be implemented with different names and hierarchies in different banks depending on their corporate strategies and focus. We presented the trading platform as the enabler or backdrop of most of these activities of the global treasury (where exotics trading activities take place) and the associated business units (that handle various aspects of the trade workflow) mainly because we are looking at the whole thing from the quantitative development perspective.

Back Office and Finance

Bu açıdan bakıldığında, you see the trading platform as the most important tool (or collection of tools) in the bank. It mediates almost all the interactions among the various business units. Ayrıca, as we shall see in future posts, the trading platform defines the trade workflow and lifecycle management. Bu nedenle, it will also become important for the quantitative developers to understand how these business units view trades and the trade booking and management process. Their trade perspectives will have to influence the design of the trading platform.

Arka Ofis, Maliye diğ

From the quant and quantitative development perspective, Back Office is a distant entity. Their role is vital in the trade lifecycle, as we shall see later, but they are outside the sphere of influence of the quants and developers.

Back Office and Finance

Back Office concerns itself mainly with trade settlements and accounting. Upon maturity, each trade generates a settlement trigger usually with the help of a vended trading or settlement platform, which will be picked up and acted upon by the Back Office professionals. They also take care of cash and collateral management.

Finance functions are closely related to Back Office operations. Among a host of accounting related operations, they have one critically important task, which is to produce annual reports. These reports get publicly scrutinized and determine everything from the stock price to performance bonuses, salary levels etc. Finance professionals may require quant and analytic help for certain tasks. In one of my previous roles, I was asked to estimate the fair market value of the employee stock options (ESOP) for the purpose of accounting for them in the annual reports.

The process of pricing ESOP is similar to (although a bit more complicated than) normal call option pricing. Among other things, you need the volatility of the underlying stock in order to calculate the price. I used the standard exponentially weighted moving average method to estimate it from the published stock prices over the previous two years or so to compute it because that was all the data I had access to. Before that time, there was some corporate action and stock ticker name had changed (or did not exist, I don’t remember which). Her halükârda, I knew that the impact of adding more data prior to that date would be negligible because of the exponentially diminishing weights; it would be much less that the round off error in quoting the price to four decimal places, Örneğin. But the accountant who was asked to look at the computation was upset. She came to me with her rulebook and referred me to page 57, paragraph 2, where it was specified that I was supposed to use ten years for the EWMA computation. Denedim, Sadece, to explain to her that I couldn’t. She kept saying, “Evet, but page 57, para 2….” I went on to explain why it didn’t really make any difference. Dedi, “Evet, but page 57, para 2….”

Accountants and Finance professionals can be that way. They can be a bit “technical” about such things. In hindsight, I guess I was being naive. I could have just used a series of zeros to back-populate the missing eight years of data (sonunda, if the ticker price was not quoted, it is zero), and redone my ESOP valuation, which would have given an ESOP price identical to what I computed earlier, but this time satisfying both Finance and the quants.

IT and other support

A team which quantitative developers work closely with is Information Technology. They are charged with the IT infrastructure, security, networking, procurement, licensing and everything else related to computing. Aslında, quantitative development is, as I portrayed it earlier, a middle layer between IT and pure mathematical work. So it is possible for quantitative developers to find themselves under the IT hierarchy, although it doesn’t work to their advantage. Information Technology is a cost center, as are all other Middle and Back Office functions, while Front Office units connected to trading are profit centers. Profit generators get compensated far better than others, and it is better to be associated with them than IT.

Oranları ve Değerleme

Marking trades to market requires up-to-date market data. There are two types of market data required for pricing — one is the live spot rates, volatilities, interest rates etc. This type of data is collectively called rates. The second type is the kind that goes into defining the products being traded, or the characteristics of the rates. These include definitions of interest rate pillars, bond coupon dates and rates etc. This second type is considered static data.

Valuation and Product Control

The rates management team is in charge of the first type data. They ensure that the live data providers are consistent with each other and that the data itself is accurate. They do this by applying various automated tests and limits to the incoming rates to flag any suspicious movement or inconsistency. Once approved by the team, the data gets consumed by the trading platform. The rates management is a critical role, and the market data is often stored and served in dedicated databases and services. Because of the technicalities involved, this team works closely with the information technology professionals.

The static data is typically managed by a separate team independent of rates management. They go by various names, Treasury Control being one of them. They set up traded products and rates pillars and so on. In some banks, they may also be responsible for trade input data validation.

Two other important functions of Middle Office are valuation and product controls. These functions are pretty far removed from quantitative development and trading platform. These teams ensure that the trade valuations and P/L movements are consistent with market movements. Valuation Control takes a close look at pricing and P/L mostly at trade level while Product Control worries about P/L explanation typically at portfolio level. Since we have the Greeks (rates of change of product prices with respect to market quantities and time), we can compute and predict the change in the prices (or P/L movements) using Taylor series expansion. If the independently computed prices (using actual market rates) are at odds with the predicted ones, it points to an internal inconsistency and should trigger a detailed investigation.

Product Control may also help Finance and Human Resource with valuation reserves process, which estimates the level of exaggeration in the profit expectations of ebullient traders. Since traders’ compensation is tied to the profit they generate, this process of assigning reserves against profit is essential in ensuring equitable performance rewards.

Piyasa Riski Yönetimi ve Analitik

Eğer piyasada oynarsan, Eğer size karşı hareket olabilir riskiyle. Bu risk, elbette, piyasa riski ve bunu yönetmek için bir Orta Ofis ekibimiz var. Piyasa Riski Yönetimi (MRM) hacimleri ve ticareti ürün türleri üzerinde risk limitleri üst yönetim tarafından belirlenen risk iştahı ile uyumlu olarak ayarlanmış olmasını sağlar. Bu işlem, aynı zamanda, Düzenli işleme ve izleme yoluyla, Bu sınırlar yapıştırılır ki.


Böyle Riske Yunanlılar ve Değer risk önlemler nelerdir izlenir vardır (VaR). Yunanlılar gibi altta yatan bedeli olarak çeşitli piyasa değişkenleri açısından bir güvenlik fiyat birinci ve ikinci dereceden türevleri, faiz oranları, Vadeye kadar zaman gibi volatilite yanı sıra ticaret özel kuruluşlar. RAD olumsuz piyasa hareketleri durumunda belirli bir güven düzeyinde kaybı miktarını tahmin istatistiki uç nokta ölçüsüdür, ve tipik geçen yıl ya da öylesine tarihsel piyasa hareketleri kullanılarak hesaplanır. Bu risk önlemler toplanmış olan, dilimlenmiş ve çeşitli şekillerde doğranmış onları izlemek için kolay hale getirmek için, ve üst yönetime rapor, risk kontrol komiteleri, ticaret masaları vb. MRM ekibi ayrıca düzenleyici kurumların raporlama sorumludur, hem şiddetli piyasa hareketlerine tepki olarak düzenli uyum raporları şeklinde yanı sıra geçici raporlarda.

Quants MRM içinde gömülü Analytics ekibi fırsatları bulabilirsiniz. Bu ekip fiyatlandırma modeli doğrulama sorumludur, ticaret sistemlerinde konuşlandırılmış matematiksel modeller ve diğer değerlemeler uygun ve doğru bir şekilde uygulandığında hem motor sağlama süreci hangi. MRM analitik quantlar yapmak iş ve Ön Büro karşı parçaları arasında önemli bir örtüşme vardır (Biz fiyatlandırma veya model Quants denilen kime). Analytics ekibi ayrıca genel MRM veya risk yönetiminde ihtiyaç duyulan diğer herhangi bir nicel araçlar ilgilenir. Bu tür araçlar gelecekteki potansiyel maruz kalmaları içerebilir (PEF) Kredi risk yönetimi için, Varlık ve Yükümlülük likidite modelleme (AML) vb.

Kredi Risk Yönetimi

Risk management is a critical function of Middle Office. Credit risk is the risk that somebody who owes you money may not be able or willing to honor their obligation. Başka bir deyişle, they may default on their credit obligation. This risk is managed in a bank using a variety of statistical tools.

Middle Office

When a bank issues you a credit card, it takes on credit risk that you may not pay up. You pay an insanely high interest rate on your outstanding balance precisely because of this credit risk. The risk is not secured. A mortgage or an auto loan, diğer taraftan, is secured by the equity of your property, and you pay a significantly lower interest because of the collateral.

The Middle Office team of Credit Risk Management (CRM) operates using the same two paradigms. Much the same way as you have a credit limit on your credit card or line of credit, each counterparty that the bank trades with has a certain credit limit based on their credit rating as published by credit rating agencies such as Moody’s or Standard & Poor. The problem with this mode of managing credit risk is that the bank has no way of knowing how much credit is loaded against a counterparty’s rating in other banks. Nor does it have a means of finding out how many credit cards you have. In Singapore, the regulatory authority, MAS, tries to minimize the risk of people going bust be requiring that their credit limit be twice their monthly salary. Bt they may get as many credit cards as they want from different banks against the same limit, effectively nullifying the good intention behind the requirement.

This overloading against credit rating is avoided when the risk is managed using collaterals. Much like you cannot take two mortgage loans on the same property (not without adequate equity, any way), counterparties in trading also cannot use the same collateral for multiple trades. Banks and counterparties typically use bonds as collaterals and physically exchange them during secured transactions.

Before the Front Office trader can enter into a trading agreement with a counterparty, they will need to get approval from the credit controllers who will assess exposures and check them against predefined limits. The exposure assessment uses techniques such as potential future exposure (PEF) based on a large number of simulations of potential future markets.

In addition to the risk of counterparties defaulting during the life time of a trade, CRM professionals worry about the potential for default during the delay in settlement — after the maturity of a trade (where the bank is in the money) and its settlement. This risk is aptly called the settlement risk.

Orta Ofis

The structure of Middle Office in a typical bank is depicted in the slide below. The functional units within Middle Office work hand in hand with those in Front Office to handle the inception approvals and regular processing of trades.

Middle Office

Middle Office is different from Front OFfice in that it has little interaction with the external world. Its primary (and perhaps only) customers are the Front Office traders and teams. Her zaman olduğu gibi, most of the interactions among the teams within Middle Office and Front Office take place via the trading platform, which acts like the boundary interface between the two Offices, as shown in the slide.

In later posts, we will go through the functions of each of the business units described as a box in the picture. For now, as a general summary, we can see that the Middle Office functions are of two kinds: those related to trade approvals based on projected risks and limits, and those related to regular trade monitoring. But these functions are vast in their scope, and require large systems, data flows and an army of professionals to carry them out. They are organized under the business units with names like Product Control, Trade Control (or Treasury or Business Control) Unit, Market, Credit and Operational Risk Management), Limits Monitoring, Rates Management, Compliance and Regulatory Reporting, Analytics, Asset and Liability Management etc. Yine, keep in mind that this description of Middle Office is from the perspective of quantitative development relevant to structured products trading.

Kantitatif Geliştiriciler

Kantitatif Geliştiriciler Ön Büro uzayıp her şeyin merkezinde gibi görünüyorsa (Aşağıdaki slayt göre, olmasıdır), Bunun için iyi bir nedeni vardır. Bu seri Kantitatif Kalkınma bakış açısıyla yazılmıştır. Sonunda, seri, konuşma, ve kitap tüm başlıklı vardır “Kantitatif Geliştirme İlkeleri.” Bu noktadan itibaren, Emin, evrenin merkezinde yer almaktadır.

Quantitative Developers

Adil olmak için, yapılandırılmış ürünler ticareti, nicel gelişme ve kantitatif matematik önemli bir rol oynamaktadır. daha sonra mesajların göreceğimiz gibi, ticaret yaşam döngüsü yönetimi hemen hemen tüm yönleriyle bu nicel profesyonellerin nihai ürünün aracılık, hangi ticaret platformu. En önemlisi, ticaret platformu Ön Büro ve Orta Ofisi arasında bir arayüz tanımlar. Ön Büro içinde, nicel geliştiriciler platform haline kuvantlanna tarafından geliştirilen fiyatlandırma modelleri entegre kanal olarak hareket, böylece masa ticareti yaparak kâr sağlamaya onları erişilebilir hale. Çünkü nicel geliştiriciler oynamak bu tamponlama rolü, Onlar ön Office masa ve satış personeli ticaret neredeyse destek isteklerin tümünü alanına zorunda, yanı sıra ticaret platformu kullanan kimseden.

kurumsal organizasyonda, nicel geliştiriciler bilgi teknolojisi departmanı altında kendilerini bulabilirler, uzaktan işlem platformu destekleyen. Bir kariyer açısından bakıldığında, BT bir maliyet merkezi olduğundan bu örgüt onlar için idealdir daha az, bir kar jeneratör ve tazminat ve ödeme sistemlerinin gerçeği yansıtmadığını. Ayrıca, BT bankanın ana faaliyet dışında olarak kabul eğilimindedir. Onları kendileri Ön Büro ortamında katmanında gömülü olarak bulamıyoruz olacaktır çok daha iyi, nerede nicel geliştiriciler içinde paydaşlara doğrudan destek sunmak ve hayati içi ticaret platformu yönetmek kritik rolü ile geliyor önem ve prestij keyfini.

Ticaret Masaları

At the heart of Front Office are the trading desks. In terms of prestige and power, they really are the reason for the whole infrastructure of Front Office, including economists, sales, structuring, quants, quantitative developers etc. Sonunda, they make the profits. Ve sonuç, the vocal and volatile traders hold enormous sway. At their beck and call, quantitative developers provide instant service on trading platform issues; quants develop pricing models based on their requirements.

Trading Desks

Trading desks interact with the external world of brokers and counterparties. They take their input on market moves from highly responsive market data providers and base their positional views on staff economists. They have an army of trading assistants (junior traders themselves) who help them book and monitor their trades with the help of risk management professionals associated with the desks.

Their interaction with the rest of the bank is mainly mediated by the trading platform. When the book a trade, Örneğin, it goes into the trading platform and ends up with some middle office professional who will decide whether to accept it or bounce it back for further modifications. Various risk management staff from the middle office also will take a hard look at the trade, as we shall see later in the trade lifecycle.

The desk risk management team get their cues also from the Middle Office risk management, in terms of approved limits and daily marked-to-market and sensitivity reports. All these channels of communication need to be facilitated in the trading platform.

Satış ve Yapılanma

Those in sales tend to be personable, extroverted and persuasive people. A good salesman can sell a refrigerator to an eskimo, I’m told. IN the context of the front office in the global treasury or global markets, sales people are tasked with sniffing out trading needs from their customers and offer compelling products from the trading and structuring desks to fulfill them.


The life of a sales professional is a tough one. They need to meet progressively more aggressive targets in sales volumes to stay in the game. The moment they meet the target one year, it jumps the next year to an even more unattainable level. The sales staff, therefor, find themselves under constant (or even increasing) Basınç. Knowledge of mathematical finance, while useful, is not a pre-requisite for sales jobs. Aslında, mathematically inclined folks tend to be reserved and introverted, and tend not to have the qualities that make for a good salesman. Başka bir deyişle, if you are a quant, your most ideal role is not in sales, although the structuring side may offer some interesting opportunities.