Luigi Ballabio · leanpub.com

About

This book is a report on the design and implementation of QuantLib, alike in spirit—but, hopefully, with less frightening results—to the How I did it book prominently featured in Mel Brooks' Young Frankenstein (in this case, of course, it would be "how we did it"). If you are, or want to be, a QuantLib user, you will find here useful information on the design of the library that might not be readily apparent when reading the code. If you're working in quantitative finance, even if not using QuantLib, you can still read it as a field report on the design of a financial library. You will find that it covers issues that you might also face, as well as some possible solutions and their rationale. Based on your constraints, it is possible—even likely—that you will choose other solutions; but you might profit from this discussion just the same.

The book is primarily aimed at users wanting to extend the library with their own instruments or models; if you desire to do so, the description of the available class hierarchies and frameworks will provide you with information about the hooks you need to integrate your code with QuantLib and take advantage of its facilities. If you're not this kind of user, don't give up on the book yet; you can find useful information too. However, you might want to look at A QuantLib Guide and QuantLib Python Cookbook instead.

Implementing QuantLib is also available as a paperback from your local Amazon store.

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Author

Translations

Testimonials

  • The co-founder of the QuantLib project guides the reader on a safe path through the jungle of this precious library’s design ideas and class hierarchies. This book thus unlocks the library to the novice, and it is full of insightful discussions that makes it surprising and enjoyable reading for the long-time QuantLib user. I would have benefitted a lot had this work been available when I started my own and initially bumpy journey of exploring and using QuantLib in 2001!

    Roland Lichters

    Co-founder and CTO of Quaternion Risk Management, co-author of “Modern Derivatives Pricing and Credit Exposure Analysis”

  • C++ is the gold standard for computational finance applications. Luigi has done a thorough job of integrating modern C++ and Design Patterns to a range of equity and fixed income pricing problems. I warmly recommend it to MSc and MFE students of finance who wish to learn how to use and to write structured code.

    Daniel J. Duffy

    Author of “Financial Instrument Pricing Using C++” and “Introduction to C++ for Financial Engineers: An Object-Oriented Approach”

Contents

1.Introduction

2.Financial instruments and pricing engines

  1. 2.1The Instrument class
  2. 2.1.1Interface and requirements
  3. 2.1.2Implementation
  4. Aside: const or not const?
  5. 2.1.3Example: interest-rate swap
  6. Aside: handles and shared pointers.
  7. 2.1.4Further developments
  8. 2.2Pricing engines
  9. Aside: impure virtual methods.
  10. 2.2.1Example: plain-vanilla option

3.Term structures

  1. 3.1The TermStructure class
  2. 3.1.1Interface and requirements
  3. 3.1.2Implementation
  4. Aside: evaluation date tricks.
  5. 3.2Interest-rate term structures
  6. 3.2.1Interface and implementation
  7. 3.2.2Discount, forward-rate, and zero-rate curves
  8. Aside: symmetry break.
  9. Aside: twin classes.
  10. 3.2.3Example: bootstrapping an interpolated curve
  11. Aside: a friend in need.
  12. 3.2.4Example: adding z-spread to an interest-rate curve
  13. 3.3Other term structures
  14. 3.3.1Default-probability term structures
  15. Aside: Cinderella method.
  16. 3.3.2Inflation term structures
  17. 3.3.3Volatility term structures
  18. 3.3.4Equity volatility structures
  19. Aside: interpolations and extrapolations.
  20. 3.3.5Interest-rate volatility structures

4.Cash flows and coupons

  1. 4.1The CashFlow class
  2. Aside: late payments.
  3. 4.2Interest-rate coupons
  4. 4.2.1Fixed-rate coupons
  5. 4.2.2Floating-rate coupons
  6. Aside: keeping one’s balance.
  7. 4.2.3Example: LIBOR coupons
  8. Aside: breach of contract.
  9. 4.2.4Example: capped/floored coupons
  10. 4.2.5Generating cash-flow sequences
  11. 4.2.6Other coupons and further developments
  12. 4.3Cash-flow analysis
  13. 4.3.1Example: fixed-rate bonds

5.Parameterized models and calibration

  1. 5.1The CalibrationHelper class
  2. 5.1.1Example: the Heston model
  3. Aside: breaking assumptions
  4. 5.2Parameters
  5. 5.3The CalibratedModel class
  6. 5.3.1Example: the Heston model, continued

6.The Monte Carlo framework

  1. 6.1Path generation
  2. 6.1.1Random-number generation
  3. Aside: the road more traveled.
  4. 6.1.2Stochastic processes
  5. 6.1.3Random path generators
  6. Aside: access patterns.
  7. Aside: stepping on one’s own toes.
  8. 6.2Pricing on a path
  9. 6.3Putting it all together
  10. 6.3.1Monte Carlo traits
  11. 6.3.2The Monte Carlo model
  12. 6.3.3Monte Carlo simulations
  13. Aside: synchronized walking.
  14. 6.3.4Example: basket option
  15. Aside: need-to-know basis.

7.The tree framework

  1. 7.1The Lattice and DiscretizedAsset classes
  2. 7.1.1Example: discretized bonds
  3. 7.1.2Example: discretized option
  4. 7.2Trees and tree-based lattices
  5. 7.2.1The Tree class template
  6. Aside: curiouser and curiouser.
  7. 7.2.2Binomial and trinomial trees
  8. 7.2.3The TreeLattice class template
  9. 7.3Tree-based engines
  10. 7.3.1Example: callable fixed-rate bonds

8.The finite-difference framework

  1. 8.1The old framework
  2. 8.1.1Differential operators
  3. 8.1.2Evolution schemes
  4. 8.1.3Boundary conditions
  5. 8.1.4Step conditions
  6. Aside: look, Ma, no hands.
  7. 8.1.5The FiniteDifferenceModel class
  8. 8.1.6Example: American option
  9. 8.1.7Time-dependent operators
  10. 8.2The new framework
  11. 8.2.1Meshers
  12. 8.2.2Operators
  13. 8.2.3Examples: Black-Scholes operators
  14. 8.2.4Initial, boundary, and step conditions
  15. Aside: dispelling magic.
  16. 8.2.5Schemes and solvers

9.Conclusion

A. Odds and ends

  1. Basic types
  2. Date calculations
  3. Dates and periods
  4. Calendars
  5. Day-count conventions
  6. Schedules
  7. Finance-related classes
  8. Market quotes
  9. Interest rates
  10. Indexes
  11. Aside: how much generalization?
  12. Exercises and payoffs
  13. Math-related classes
  14. Interpolations
  15. Aside: gordian knots
  16. One-dimensional solvers
  17. Optimizers
  18. Statistics
  19. Aside: extreme expectations.
  20. Linear algebra
  21. Global settings
  22. Aside: more mutations than in a B-movie.
  23. Utilities
  24. Smart pointers and handles
  25. Aside: pointer semantics.
  26. Error reporting
  27. Disposable objects
  28. Design patterns
  29. The Observer pattern
  30. The Singleton pattern
  31. The Visitor pattern

B. Code conventions

QuantLib license

Bibliography

Also by the Author

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