Finance Software Projects
New York University
Adjunct Instructor Scott Burton
FSP Introduction
• Background
• Plan for Semester
• First half:
• Individual submissions weekly
• Build foundational components and a server back-end
• Second half:
• Form 2 person teams
• Programming phases
• Build a risk management app typically used on a trading desk
• Presentation/demo at the end
• Periodic tests to check your programs and domain knowledge
• Programming phases evolving to final product
• Each team votes for best product and presentation 
FSP Introduction (cont)
• Class Objectives
• Develop some software that is good!
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Organization
Extensibility
Testability
Clarity
Speed
Size
Accurate
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Learn some interesting aspects of financial markets!
Implement living specs provided as spreadsheets
Teacher Objectives
Student Objectives
FSP Introduction (cont)
• Grading:
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Weekly programming phases
3 quizes on the “The Mythical Man-Month”
Presentation/demo of final app
Class participation
Attending all classes will help your grade
If you have to miss a class notify me in advance
Missing more than two classes will hurt your
grade
Financial engineering
is built on 3 basic principles
“Put a financial engineer on a desert island and
give him only a few tools, such as the means to
calculate the time value of money, the ability to
contract on random outcomes, and a legal
structure that allows the transferability of
financial claims, and most of today’s financial
instruments could be re-constructed.”
“Origins of Value”
Financial engineering
cont..
1. “Time Is Money”
“Inter-temporal value transfer” (aka a Loan)
2. “Negotiability”
Suppose you have loaned someone money for a year.
Now you need the cash. You could become a borrower
yourself OR you could sell the contract to another
person. It saves the trouble of a second contract and
creates instant money
3. “Contingent Claims”
Allows people to hedge themselves against the risk of
an unknown future…
Capital Raising
Has Money
Needs Money
• Wants a return (yield)
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Borrows money
• Buys a bond
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Issues a bond
• Owns a security
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Financial firms facilitate
• Can sell security later
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Charge fee
Securitization
“Turns cumbersome, illiquid financial contracts
with governments or other entities (e.g.,
corporations) into liquid instruments of a smaller
denomination that can be easily bought and sold
in a capital market.”
Pricing function for a financial
instrument
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To value a financial instrument and facilitate making
them transferable we need a standard formula to
price them.
Allows us to calculate the price of a bond given the
interest it is contracted to pay and takes into account
the current prevailing market (interest rate you could
get elsewhere for a similar instrument).
Allows us to calculate sensitivities to hedge/speculate
For a bond it’s the “Yield To Maturity” formula.
Capital markets concepts we will
cover
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Primary / Secondary
Sell-side / Buy-side
Long / Short
Relative Pricing
Risk Transfer
Proprietary / Flow Trading
Exchange traded / Over the Counter
Securitization
Trading Desk Structure
Break ...
Continue with NYU_class2.ppt
(FSP_investment_bank_structure on the site)
Deliverables for next week
1. Establish UNIX dev environment:
GNU on real UNIX (Linux or Mac OS X)
2. Build and link the provided library and
call the timer utility
3. “Conceptual Integrity” - which page
does it first appear on Mythical Manmonth?