Behavioral Design Patterns
Template Method
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CS 631: Behavioral Design Patterns: Template Method
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Outline
• Behavioral Design Patterns
– Overview
• Template Method
– Application
• Forward contracts
• Implementation
– Design
– Policy Implementation
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Behavioral Design Patterns
• Behavioral design patterns are concerned with
algorithms and the assignment of responsibilities
between objects.
• They describe not just patterns of objects or classes
but also the patterns of communication between
them.
• Behavioral patterns characterize complex control
flow that is difficult to follow at run-time.
• They shift the developer's focus away from the flow
of control to concentrate on the way objects are
interconnected.
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Forward Contracts
• A forward contract is an agreement to buy or sell an
asset at a certain future time for a certain price.
– A spot contract is an agreement to buy an asset today.
• One of the parties assumes a long position to buy the
asset.
• The other party assumes a short position to sell the
asset.
• Example: forward contracts on foreign exchange.
– Exchange rate between the British pound (GBP) and the
U.S. dollar.
– Useful to hedge foreign currency risk.
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Forward Contract: Example
Quotes for USD-GBP exchange rate
Bid
Spot
6-month forward
1-year forward
1.4452
1.4353
1.4262
Offer
1.4456
1.4359
1.4268
The bank is prepared to buy GBP immediately at $1.4452 per
GBP, and sell it immediately at $1.4456.
The bank is prepared to buy GBP in one year at $1.4262 and sell
it at $1.4268.
When a U.S. corporation knows it will pay £1 million in six
months, it may enter the 6-month forward contract at $1.4359.
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Forward contract: Payoff
• If the spot rate rises to 1.5000 in six months, the
contract will be worth $64,000 (= $1,500,000 $1,435,900) to the corporation.
• If it falls to 1.4000 , the contract will have a negative
value to the corporation.
• The payoff from the long position in the forward
contract is (ST – K), where ST is the spot price of the
asset at the maturity of the contract, and K is the
delivery price.
• The payoff from a short position in the forward
contract is (K - ST).
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Forward Contract: Evaluation
Assume we know the spot price ST of the asset at the time of maturity.
Also, let r be the current risk-free interest rate. Then the value of a long
forward contract today is:
f  ( ST  K )(1  r ) T
The value of a short forward contract today is:
f  ( K  ST )(1  r ) T
In other words, the value of a forward contract is:
f  PT (1  r ) T
where PT is a payoff at the time of maturity T.
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Forward Contract: Implementation
class ForwardContract
{
public:
ForwardContract() {}
virtual ~ForwardContract() {}
double value()
{
Market& market = Market::getInstance();
double r = market.getRate(maturity);
return getPayoff()*
pow(1+r, (-1.0*this->maturity));
}
...
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Forward Contract Class
protected:
virtual double getPayoff() const = 0;
protected:
double maturity;
double deliveryPrice;
double spotPrice;
};
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Forward Contract: Long Position
class LongForwardContract : public ForwardContract
{
protected:
virtual double getPayoff() const
{
return spotPrice-deliveryPrice;
}
};
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Forward Contract: Short Position
class ShortForwardContract : public ForwardContract
{
protected:
virtual double getPayoff() const
{
return deliveryPrice-spotPrice;
}
};
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Template Method: Design
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Template Method: Analysis
• Intent
– Define an algorithm in a method, deferring some steps in
subclasses.
• Applicability
– to implement invariant parts of an algorithm;
– to refactor and localize the common behavior among
subclasses to avoid code duplication.
• Participants
– AbstractClass (ForwardContract)
• defines abstract primitive operations to be implemented by
subclasses.
• implements an algorithm as a template method.
– ConcreteClass (LongForwardContract)
• implements the primitive operations.
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Policy Implementation
template <class POSITION>
class ForwardContract
{
public:
ForwardContract() {}
double value()
{
double r =
Market::getInstance().getRate(this->maturity);
POSITION position(this->deliveryPrice,
this->spotPrice);
double payoff = position.getPayoff();
return
payoff*pow(1+r,(-1.0*this->maturity));
}
...
};
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Position Policies
class LongPosition
{
public:
LongPosition(delivery, spot) :
deliveryPrice(delivery), spotPrice(spot)
{}
double getPayoff()
{
return this->spotPrice –
this->deliveryPrice;
}
protected:
double deliveryPrice;
double spotPrice;
};
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Client Code
...
ForwardContract<LongPosition> lfc;
...
lfc.setMaturity(...);
lfc.setDeliveryPrice(...);
lfc.setSpotPrice(...);
cout << lfc.value();
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Policy Implementation: Analysis
• Advantages
– Compile-time checking
– Flexibility
• Position policy can be used with other classes.
– Efficiency
• Classes are compiled only if needed.
• Disadvantages
– Potential for code bloating
– Some redundancy
• The same data are used in the class and policies.
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