## Friday, August 31, 2012

### SAS Base Certification Preparation Advice Strategy

Data Step
Proc Step

Library referring

VB is more to excel linked work, which handles less data, like 2-3 lack entries
SQL is generic and common to all MATLAB SAS VBA
it is database methodology
R is a free solution for MATLAB SAS
SAS is more database manatment less maths
MATLAB is more maths less database

## Saturday, August 25, 2012

### Market Risk Credit Risk FRM L2 (Book1) Prep Strategy Info [Learn FRM using MATLAB/R/VBA]

Market Risk FRM L2

Three most interesting areas in Market Risk Uni variate and Multi Variate :
1. EVT
2. Multi Variate Models
3. Back Testing
4. Monte Carlo
5. Copula

4 Chapters in which the area is divided:
1. Uni variate
2. Multivariate
3. Volatility
4. MBS: OAS, etc. Pre payment, trenching, etc

The first two might be theoretical and more maths, but the last 2 are seen extensively in the market. Volatility index is something which is often seen and an important area.

Credit risk
A highly practical subject
1. Includes CDO, CDS, pre payments, etc
2. default probability and CDS
3. sovereign rating: GDP, currency and debt of the nation
4. measuring default from market prices
6. merton model
7. currency swap interest rate swap
8. CDO structure trenching: junior senior

Other topics
Hedge fund risk / portfolio risk

MATLAB VAR:
http://gloria-mundi.com/library_journal_view.asp?journal_id=8769
http://www.mathworks.com/matlabcentral/fileexchange/32154-estimation-value-at-risk-by-using-conditional-copula-garch
http://www.mathworks.com/help/finance/conditional-value-at-risk-portfolio-optimization.html
http://www.mathworks.com/help/finance/portvrisk.html
http://www.docstoc.com/docs/73976635/Matlab-Code-for-Value-at-Risk-Methods
http://www.analyticsresearch.net/Documents/VALUE%20AT%20RISK.new4practical.pdf
http://datavir.com/?p=304
http://www.thetaris.com/wiki/Value_at_Risk
http://www.mathfinance.cn/value-at-risk-estimation-with-copula/
http://www.sfu.ca/~rgencay/evim.pdf
http://phd.london.edu/pnath.phd98/MatlabUtilities.htm

## Wednesday, August 22, 2012

### R for Financial Engineering Course on Applying R in Quantitative Finance/ Analytics & Projects at qcfinance.in

R for Financial Engineering / Quantitative Finance

R is mix of MATLAB and SAS, if I relate to the other 2 tools used in Finance.
R is having mix of maths and data handling powers of SAS and given that it is open source and the best choice for research.

R is MATLAB when it comes to syntax.
When it comes to data handling it uses RMySQL in the very same way as SAS does.
SQL has inherent limitations of doing quant computations, and MATLAB is heave and requires too much resources. MATLAB is not very good to deal with SQL at system level.

But to start with, one also needs to know VBA for entry level and for easy task, VBA is preferred.

Divisions:
1. 10 hours on handling data, functions, indexing, structures, data linkages, importing, SQL, etc
2. 10 hours on Financial Commands, tools, pre-built libraries.

I will discuss in detail about R and its application in this post.

Ref: R in a Nutshell

For getting some info you can join my MATLAB Course at:
http://stockcreditfinancecfa.blogspot.com/2012/07/50-hours-course-in-matlab-for-finance.html

Join our MATLAB for financial engineering course (http://www.wiziq.com/course/7225-matlab-for-financial-engineering) & get 15% discount. Ask for discount code, e-mail:- info@qcfinance.in.

Course based on:

http://www.unicom.co.uk/quant-finance/R-for-Finance.php

http://www.optirisk-systems.com/papers/FinancewithR.pdf

http://www.optirisk-systems.com/events/finance-with-r.asp

https://www.rmetrics.org/ebooks-basicr

http://www.r-bloggers.com/search/finance

http://www.rinfinance.com/RinFinance2009/presentations/ChicagoWuertz.pdf

http://blog.revolutionanalytics.com/2011/11/course-financial-data-modeling-and-analysis-in-r.html

http://braverock.com/brian/R/PerformanceAnalytics/html/PerformanceAnalytics-package.html

http://www.quantmod.com/documentation/00Index.html

Introduction to R
• Some background on R, how to obtain and how to install it.
• R documentation and help and web resources available.
• R Console and R GUI.
• Data import, data types and variables.
• Elementary import functions.
• Data types.
• Variable generation, inspection and modification.
• Graphics in R.
• Command "plot" and where to plot.
• Setting the par.
• High-level and low-level plotting functions legends.
• Math in plots.
• Hands-on Session—data handling & graphics.
• Simulations in R.
• Simulating from given distributions.
• Risk management basics.
• Data Structures in R.
• Review of types of objects.
• Basics of the R Language.
• Conditionals & Loops.
• Writing R Functions: Basic functions.
• Object-orientation.
• Debugging.
• Application in Finance.
• Calculating Value at Risk.
• Packages for Portfolio Optimization.

Functions of R/R Commands to be covered in the course:
Caution: Always save workspace.
Use “c” when you want to use it a signal in black scholes formula.

read.table function will be used to get the data into R (/\ used opposite
than the one used in windows)
http://www.ats.ucla.edu/stat/r/faq/inputdata_R.htm.

Example 1
> test.txt <- read.table ("C:/Documents and Settings/shivbhakta.joshi/My
> print(test.txt)
> column <- test.txt[,c('make','price')].

Example 2
grb <- read.table ("C:/Documents and Settings/shivbhakta.joshi/My
x <- (grb[,1]).

Grabbing data from tables into a single dimensional array
x <- (grb[,1])
y <- log(grb[,1]).

Another way to create returns for stock daily return is
f=dft\$age/dft\$price (using dollar sign extraction)
Deleting column http://www.sr.bham.ac.uk/~ajrs/R/r-manipulate_data.html
Adding data to array busing column command

Using Data frames
Data.frame is used to combine the arrays back into table format
people = data.frame (x,y)
Write.CSV command executed
write.csv(people,"filename.csv")

x <- (grb[,1])
y <- log(grb[,1])
people = data.frame (x,y)
write.csv(people,"filename.csv")

These methods can be used to compute beta from columns of a csv file.

Working formula of Black Scholes
BS <-
function(S, K, T, r, sig, type="C"){
d1 <- (log(S/K) + (r + sig^2/2)*T) / (sig*sqrt(T))
d2 <- d1 - sig*sqrt(T)
if(type=="C"){
value <- S*pnorm(d1) - K*exp(-r*T)*pnorm(d2)
}
if(type=="P"){
value <- K*exp(-r*T)*pnorm(-d2) - S*pnorm(-d1)
}
return(value)
}

Black Scholes <- function(s, k, r=.1, t=5, sigma=.9,call=TRUE) {
#calculate call/put option
d1 <- (log(s/k)+(r+sigma^2/2)*t)/(sigma*sqrt(t))
d2 <- d1 - sigma * sqrt(t)
ifelse(call==TRUE,s*pnorm(d1) - k*exp(-r*t)*pnorm(d2),k*exp(-r*t)
* pnorm(-d2) - s*pnorm(-d1))
}

Predefined Black schools model:
http://shafik.net/~shafik/FinancialEngineering/Code/
black_scholes ("c",5600,5600,.1,.08,.22 )
this depicts use of functions in R.

Merton Distance to Default (different as per needs)
(modified from Black Scholes formula, still
d1 <- (log(s/k)+(sigma^2/2))/(sigma)
pnorm(d1)

3 files are needed to run the demos which are available on internet by various authors:
1. black_scholes.R
2. GRB_afterglow.dat
3. test.txt.

ARIMA and Forecasting Using R

Commands:

library(Quandl)
> Quandl.auth("1LkmpypqJskJzKcpd2TV")

>stockData=Quandl("YAHOO/INDEX_GSPC", start_date="2004-01-01", end_date="2014-04-17")

stockData[,7]

// ran Arima here:
results2=arima(stockData[,7], order = c(3,0,0))

fit <- arima(myts, order=c(p, d, q)

fit <- arima(stockData[,7],order = c(3,0,0))

results=arima(stockData[,7])

fit <- arima(stockData[,7],order = c(3,0,0))

predict(arima(stockData[,7], order = c(3,0,0))

results=arima(stockData[,7])

x2=(forecast(fit, 100))

plot(x2).

Excel and R:
http://www.r-bloggers.com/a-million-ways-to-connect-r-and-excel/
http://cran.r-project.org/web/packages/XLConnect/vignettes/XLConnect.pdf
http://cran.r-project.org/web/packages/XLConnect/XLConnect.pdf
https://stat.ethz.ch/R-manual/R-patched/library/base/html/getwd.html

Playing with arrays and matrix
http://cran.r-project.org/doc/FAQ/R-FAQ.html#Why-do-my-matrices-lose-dimensions_003f
https://stat.ethz.ch/pipermail/r-help/2008-February/154088.html
http://stat.ethz.ch/R-manual/R-devel/library/base/html/rev.html.

ARIMA and Predict statement
http://stat.ethz.ch/R-manual/R-patched/library/stats/html/predict.arima.html
http://people.duke.edu/~rnau/411arim.htm
http://stackoverflow.com/questions/14272937/time-series-prediction-using-r
http://www.inside-r.org/packages/cran/forecast/docs/forecast.Arima.

Market check
http://www.bloomberg.com/quote/SPX:IND/chart.

Other good References
http://heather.cs.ucdavis.edu/~matloff/132/NSPpart.pdf.

One on One Customized Training:
qcfinance.in believes in personalized touch so that our clients are completely satisfied with our service. In this regard, we offer One on One Customized Training to our clients.
These Trainings are provided on request by our clients & are customized according to their individual needs.
The course structure & timings for these training are highly flexible, classes are scheduled as per the convenience of our clients.