1.04.2005

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» Q&A: What are the different flavors of data for trade valuation?
» Q&A: How can you tell a Quant from a Scientist?
» Q&A: Are you a perfect match for Google?
» Q&A: What's the trader referring to when he says...
» Q&A: Just when I thought my performance review couldn't get any worse...
» RANT: The road less traveled
» TIP: Criticize without trace
» TIP: Be aware of what you are compromising
» RANT: Excel - a Golden Hammer?
» RANT: You know the deadline is approaching fast when...

Q&A: What are the different flavors of data for trade valuation?

_Trade Data_
  • Agreed in the context of a particular trade or series of trades with some counterparty. Appear on the termsheet for those trades
  • Not expected to change during the lifetime of the trade, unless a correction were made to reflect a previous booking error.
  • Trade date & notional are good examples. Also position information (in the case of multiple trades on the same underlying.

Static Data

  • Generally the set of conventions which are agreed by all market participants for trades of a given type. Not something which is determined between counterparties for each trade. Becomes trade data if the counterparties agree to override certain conventional value for a particular trade
  • Not expected to change during the life of the trade, unless re-conventioning, changes to settlement lags, were made. Not sensitive to trade value.
  • Settlement lag & holiday calendar are good examples.

Market Data

  • Either directly observed in the market or transformed from them (ie. additional inhouse processing)
  • Real time. ie. change from minute to minute, day to day etc. Trade values are highly sensitive to their changes.
  • The implied vols from option prices and the current stock price and are good examples.

Model Data

  • Model parameters specific to each valuation model
  • Have no place on a termsheet since each trade could in general be valued by more than one model. Generally not considered as trade attributes
  • The number of paths used for a Monte Carlo simulation, & the number of timesteps used for a grid calculator are good examples.

Category: C++ Quant > Fix the Job You Got

Your Turn!

 

Q&A: How can you tell a Quant from a Scientist?

_Quant_
  • Are motivated by financial stability for themselves and support for their families
  • Are (therefore) conservative and loyal to their companies; seek rewards for that loyalty, such as promotion
  • Tend to migrate quickly from technical work to managerial or formal "leadership" roles

Scientist

  • Are motivated by the love of knowledge for its own sake
  • Are motivated by peer group approval and validation, acceptance by others who are working in the same area irrespective of corporate affiliation
  • Tend to remain technical further into their careers

Category: C++ Quant > Trench

Your Turn!

 

Q&A: Are you a perfect match for Google?

A friend of mine thought so. The problem is that you can't just walk in to their headquarter and ask for an interview. So he did what everyone does: he applied for a programming job 3 times during the past 3 months.

Finally the phone call came. Google wanna schedule a phone screening. The dream is still alive: a step closer to an in-person interview.

He was excited to hear the phone call rang, but 5 minutes into the interview, before he hang up the phone, the in-person interview seemed so remote. The questions weren't what he expected. He can't even remember if he said 31 or 30 when the guy on the other end of the phone line asked "What power of 2 is closest to 2 billion"?

He came to realize, like most of the wannabe Googlers, maybe he's not a perfect match after all.

In case you are curious, the other questions (as far as he can recall) are (along these lines)

  • What are the three packet types to setup a TCP connection?
  • How many hosts are there in a 117?
  • Which operation is the slowest: Memory I/O, CPU I/O, Context-switching, or Disk I/O?

Category: C++ Quant > Random Walk

Your Turn!

 

Q&A: What's the trader referring to when he says...

... "6s of 1/1/2010 trading at 98"?

Answer : A bond that has a 6% coupon rate, matures at 1/1/2010 and is selling for 98% of its par value.

Bonus Points

  • A fixed income security is an obligation of the issuer who promises to pay a specified sum of money at a fixed future date in exchange for money now.
  • Par value: aka principal, face value, redemption value, maturity value. The amount that the issuer agrees to repay the bondholder by the maturity date.
    • may trade at a premium (above par) or at a discount.
  • Maturity: defines the remaining life of the bond.
    • the longer the maturity, the greater the price volatility (resulted from changes in IR)
    • defines 4 categories: Money market instruments (<= 1yr), Short-term notes ( 1yr< Mat <= 5yr), Intermediate-term bonds (5yr < Mat <= 12 years), and Long-term bonds (> 12yr)
  • Currency: A dollar-denominated issue makes payments to bondholders in US dollars. A dual-currency issue has coupon payments in one currency and principal payments in another.
  • Quoted as a percentage of its par value. ie. a price of 95 means 95% of the par value.

Category: C++ Quant > Debt

Your Turn!

 

Q&A: Just when I thought my performance review couldn't get any worse...

...To much of my surprise, my manager told me that I'm [insert your favorite weakness], which is totally not true. What should I do?

Answer : If the feedback contains zero truth (ie. something your manager makes up just to get the review over with ;-), you can try

  • Ask him for specific examples, but acknowledge the feedback first. If he says "You are not a team player." say, "I hear you. To lead me there, could you give me an example of how I could be a team player?" Ask about specific failed projects in which better teamwork could have helped.
  • Rephrase his feedback if you think it's too strong. Ask, "What do I need to do more of or less of to be more of a team player?", implying that you are already a team player but you can do more (so is everybody).
  • Ask yourself if he's part of the problem. Were you surprised to hear that feedback? If you were, then this is probably the first time he's mentioned it. That could backfire on him as a competent manager would keep feedbacks flowing on a regular basis - not saving them for yearend reviews._ If you choose to go on offensive_, try to get him into a self-evaluatory mode. (Think twice before going on offensive though.)
    • Ask questions in a positive and nonthreatening tone, like "When did it come to your attension that I'm not a team player?", then
    • Hint to him what a competent manager would do in this sitiuation, like "I know you are a good manager and you always give good feedbacks as they are needed. But I'm totally shocked that this is not brought up sooner."
    • Close the loop when he (as a good manager would) asks if there is anything she can do to help you next year. Say, "I believe I learned and contributed a lot on recent projects, and, it would be more helpful to receive more feedback sooner on [specific aspects of the project]. "
  • Ask your internal customers (traders/analysts) for feedbacks if you are sure they are on your side. Tell your boss, "I think it's important to know what the traders I support think of my work as well, so I can develop a more comprehensive action plan." Chances are this will lead to a more balanced feedback.

Category: C++ Quant > From The Trenches

Your Turn!

 

RANT: The road less traveled

When asked about the motivation for his switch from being an Quantitative Analyst to a Quant developer, a collegue told the story of a chicken and a pig walking down a street when they spotted a colorful billboard depicting a breakfast plate of eggs and bacon.

The chicken stopped to admire the advertisement and said proudly to the pig: "Doesn't that picture make you happy? Doesn't it feel good to be able to give to folks that way?"

The pig replied: "Well, yes, but...for you it's a contribution. For me -- it's total commitment!"

He then asked, "What would you rather be: a chicken or a pig?" The point he was trying to make is that while it looked like he was downgrading his paycheck, when in fact he was upgrading his marketability (or, the survival ability in terms of the story). Being a Quantitative Analyst leads not only to a fat paycheck, but also to a total commitment in Finance - which leaves very little time to enjoy the paycheck (it's hard to make your rich clients richer - no kidding :(. The zero boundary between work and home also makes him rich in money, but poor in happiness.

Being a good Quant Developer makes it easier to play a contributing role. Yes, you take a pay cut, and you are not a front runner anymore, but you have more time for yourself, and you can also survive outside of Banking & Finance altogether leveraging your IT skills. And yes, you are far from being rich.

I guess it all boils down to what makes one happy and feeling secure.

Category: C++ Quant > Fix the Job You Got

Your Turn!

 

TIP: Criticize without trace

For someone (like myself) who hates to criticize others, but have to do at times, the idea of "it's the thought that counts" could really help.

Instead of criticizing the person directly, rephrase your words in questions, like "do you know what team work is?". Hopefully these questions would get him thinking. Then ask him to do the same to another poor performer, giving him the impression that it's the other guy you are after.

Not convinced? The joke below may help.

At one point during a game, the coach said to one of his young players, "Do you understand what cooperation is? What a team is?" The little boy nodded yes.

"Do you understand that what matters is whether we win together as a team?" The little boy nodded yes.

"So," the coach continued, "when a strike is called, or you are out at first, you don't argue or curse or attack the umpire. Do you understand all that?" Again, the boy nodded yes.

"Good," said the coach. "Now go over there and explain it to your mother."

Do you think the boy would walk away not thinking a bit more about teamwork?

Category: C++ Quant > Fix the Job You Got

Your Turn!

 

TIP: Be aware of what you are compromising

The trader says, "I think 4 weeks is just a bit too long to deliver this spreadsheet. You can get it done in 2/3 of that time, can't you?"

The Quant nods in agreement and hurries off to development. The easiest way is to reduce the work in each task by 30%. "Something has to give", the Quant tells himself. "I'm a team player. I didn't insist on my schedule. I made a compromise.... next time I should probably pad the timeline so that arbitrary changes do not cripple the effort before it even starts. "

The trader have learned a lesson too. The trader has learned that the Quant's plans have a lot of "padding" built in and next time, the schedule will be shorten 50%, not just 30%.

Category: C++ Quant > From The Trenches

Your Turn!

 

RANT: Excel - a Golden Hammer?

I have worked on a number of Excel-based applications that would have been much easier/better to implement as a thick client application (in Java/C#)...

The reason is the desk (and possibly someone higher up) is obsessed with deliverying everything through Excel.

It reminds me of the story of a passerby encountering a drunk on his hands and knees under a street lamp. He offers to help and finds out that the drunk is looking for his house keys. After several minutes of searching, he asks, "Where did you drop them?" The drunk replies that he dropped them outside his front door. "Then why look for them here?" asks the passerby. "Because," says the drunk, "there is no light by my doorway."

We all find comfort applying familiar solutions to problem, sticking to what we know best. Sometimes the keys are indeed under the street lamp; but very often they are off in the darkness.

Category: C++ Quant > From The Trenches

Your Turn!

 

RANT: You know the deadline is approaching fast when...

...your boss came to you and asked if you need more resources for the analytics development.

What's ironic is that in this parituclar case it actually slows down development due to the added communication overheads. Or as they say: It takes one woman nine months to have a baby. It cannot be done in one month by impregnating nine women (although it is more fun trying).

Category: C++ Quant > From The Trenches

Your Turn!

 

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