Deliverables for Sep 21

1
Deliverables for Sep 21

• 1) Establish UNIX dev environment
• - GNU on real UNIX (Linux or Mac OS X)
• 2) Build utility library and call timer utility
• 3) Conceptual Integrity - which page does it
  first appear on Mythical Man-month?

2
Investment Bank Structure(Typical Example of
Primary Secondary Trading)
Rates
Equities
Credit
Structured

• Custom Products
• Financing
• Hedging
• Tax Strategies
• Yield Enhancement
• Ad-hoc

• Govt/Agencies
• Sovereigns (non US)
• FX spot/options
• Municipals
• IR Swaps/Deriv
• Money Market (CP)
• Commodities

• Corporates
• Bonds
• Derivatives
• Mortgage-backed
• Residential
• Commercial
• Asset-backed
• Loans

• Agency Business
• Exchange Interfaces
• Single Stock
• Program Trading
• Derivatives
• Algo trading
• AMM

Institutional Sales, Investment Banking, Capital
Markets
Proprietary Trading
Risk Management, Product Control/Finance
Research
3
Trading Function

• Maintain competitive markets in their sectors as
  well as adequate liquidity in lead managed deals
• Responsibly commit capital for clients and
  strategically position the desk
• Use various parts of the capital structure and
  other financial instruments to hedge/mitigate
  risk and seek arbitrage opportunities
• Determine appropriate bid/ask spread to maximize
  revenue while balancing volumes

• Performance Metrics
• Trading volumes
• Contribution of intellectual capital and idea
  generation
• Individual PL
• Sector expertise
• Primary Execution
• Risk Managment

4
Sales Function

• Responsible to cover 15-20 Institutional
  Investors
• Disseminate markets and field inquiry
• Communicate trading ideas
• Distribute primary offerings
• Serve as their accounts liason to the institution
• Develop relationships to capture client flows and
  foster partnership
• Gather market intelligence and investor feedback

• Performance metrics
• Sales credits
• Quality of business
• Account influence
• Information gathering
• Desk protection and PL enhancement

5
Risk Management Function

• Independent objective control function
• Not PL driven
• Set and maintain trading limits
• Credit (notional, potential exposure)
• Market (Value at Risk, sensitivity, notional)
• Operational (capital put aside for other risks
  which are not market or credit event triggered)
• Measure and maintain adequate capital
• Regulatory body interface
• Drafting and enforcement of firm policies and
  procedures
• Trade approval
• Reserves management (more of a finance
  function)

6
Research Function

• Maintain coverage of each of the debt issuers in
  a specific industry group, sector, country
• Fundamental analysis to determine credit quality
  and forecast results
• Macro-economic analysis, understand macro-trends
• Assist sales force in its effort to distribute
  new issues and secondary axes
• Synchronize the coverage universe with what is
  actively traded by the desk
• Familiarization with covenants and terms for the
  various securities and derivatives in their space

• Performance metrics
• Gather market intelligence and investor feedback
• Institutional Investor ranking and overall
  franchise enhancement
• New Issue contribution
• Maintain a strong sense of relative value to
  increase hedging and arbitrage opportunities
• Keep the desk positioned ahead of trends to
  maximize PL and maintain orderly markets

7
Establishing a Brand

• Create high visibility with accounts as
  market-makers and achieve Top Tier Status
• Trade broad array of sectors to match our
  origination footprint
• Underwrite high quality transactions and monitor
  after-market performance
• Generate toll-collecting revenue, superior market
  intelligence, maximize desk liquidity
• Consistent market-making - set the standard by
  being first to lead with prices in the morning or
  post
• High level of transparency with accounts to gain
  trust and partnership
• Maintain disciplined inventory management and be
  patient in waiting for opportunities (separate
  flow from prop)
• Proactively establish and vet all larger risk
  positions and prop trades (strategic aging).

8
Role of Technology with Capital Markets

• Risk Management - flexible ways to view and
  understand risk and correlation in the trading
  books
• Superior analytics - having faster, steadier
  systes to process data better than the
  competition
• Innovation - being on the forefront to develop
  new ways to exploit arbitrage opportunities by
  devising new tools
• Maintenance - keeping systems up and running
  during the peak demands of market hours as well
  as allowing for enhancements and scalability
• Education - teaching the business people how to
  use technology to more efficiently and
  intelligently do their day-to-day job

9
Good Technologists Maintain a Delicate Balance
Technology
User Base
Strategy
Time to Delivery
Time to Market
Performance Goals
Stay within budget
Support Innovation
Information Standards
Corporate
Front Office
Methodology
Rapid Development
Formal Process
Resources
Outsource/Offshore
Expert near desks
Delivery
Serial, by product
Parallel, X-product
Deliverables
Green field
App Replacement
Reporting
Corporate Staff
Business Line
10
Time Value of Money
The present value (PV) formula has four variables
each of which can be solved for

• PV is the value at time0
• FV is the value at timen
• i is the rate at which the amount will be
  compounded each period (in decimal)
• n is the number of periods

The cumulative present value of future cash flows
can be calculated by summing the contributions
of FVt, the value of cash flow at timet
M - Maturity (amount loaned) C - Coupon
(return on loan) i - prevailing interest rate
11
Deliverables for Sep 28

• - Quiz on Mythical Man-month chapters 1-12
• Add to your utility library
• Start building your class library
• Implement the Present Value function