This book introduces the reader to the C++ programming language and how to use it to write applications in quantitative finance (QF) and related areas. No previous knowledge of C or C++ is required -- experience with VBA, Matlab or other programming language is sufficient. The book adopts an incremental approach; starting from basic principles then moving on to advanced complex techniques and then to real-life applications in financial engineering. There are five major parts in the book: C++ fundamentals and object-oriented thinking in QF Advanced object-oriented features such as inheritance and polymorphism Template programming and the Standard Template Library (STL) An introduction to GOF design patterns and their applications in QF Applications The kinds of applications include binomial and trinomial methods, Monte Carlo simulation, advanced trees, partial differential equations and finite difference methods. This book includes a companion website with all source code and many useful C++ classes that you can use in your own applications. Examples, test cases and applications are directly relevant to QF. This book is the perfect companion to Daniel J. Duffy’s book Financial Instrument Pricing using C++ (Wiley 2004, 0470855096 / 9780470021620)

Table of Contents:
0 Goals of this Book and Global Overview 1 0.1 What is this book? 1 0.2 Why has this book been written? 1 0.3 For whom is this book intended? 2 0.4 Why should I read this book? 2 0.5 The structure of this book 2 0.6 What this book does not cover 2 0.7 More information and support 3 Part I C++ Essential Skills 5 1 Introduction to C++ and Quantitative Finance 7 1.1 Introduction and objectives 7 1.2 A short history of C++ 7 1.3 C++, a multi-paradigm language 8 1.4 C++ and quantitative finance: what’s the relationship? 11 1.5 What is software quality? 11 1.6 Summary and conclusions 13 1.7 Exercises 14 2 The Mechanics of C++: from Source Code to a Running Program 15 2.1 Introduction and objectives 15 2.2 The compilation process 15 2.3 Header files and source files 16 2.4 Creating classes and using their objects 19 2.5 Template classes and template functions 22 2.6 Kinds of errors 25 2.7 The struct concept 27 2.8 Useful data conversion routines 27 2.9 Summary and conclusions 29 2.10 Exercises and projects 29 3 C++ Fundamentals and My First Option Class 31 3.1 Introduction and objectives 31 3.2 Class == member data + member functions 32 3.3 The header file (function prototypes) 33 3.4 The class body (code file) 35 3.5 Using the class 38 3.6 Examining the class in detail 40 3.7 Other paradigms 41 3.8 Summary and conclusions 45 3.9 Questions, exercises and projects 45 4 Creating Robust Classes 49 4.1 Introduction and objectives 49 4.2 Call by reference and call by value 49 4.3 Constant objects everywhere 52 4.4 Constructors in detail 54 4.5 Static member data and static member functions 55 4.6 Function overloading 57 4.7 Non-member functions 58 4.8 Performance tips and guidelines 58 4.9 Summary and conclusions 60 4.10 Questions, exercises and projects 60 5 Operator Overloading in C++ 63 5.1 Introduction and objectives 63 5.2 What is operator overloading and what are the possibilities? 63 5.3 Why use operator overloading? The advantages 65 5.4 Operator overloading: the steps 68 5.5 Using operator overloading for simple I/O 71 5.6 Friend functions in general 72 5.7 Summary and conclusions 74 5.8 Exercise 74 Appendix: useful data structures in C++ 75 6 Memory Management in C++ 79 6.1 Introduction and objectives 79 6.2 Single objects and arrays of objects on the stack 79 6.3 Special operators: ‘new’ and ‘delete’ 82 6.4 Small application: working with complex numbers 84 6.5 Creating an array class 86 6.6 Summary and conclusions 89 6.7 Exercises 89 6.8 Review questions and comments 91 7 Functions, Namespaces and Introduction to Inheritance 93 7.1 Introduction and objectives 93 7.2 Functions and function pointers 93 7.3 An introduction to namespaces in C++ 96 7.4 An introduction to the inheritance mechanism in C++ 99 7.5 Multiple inheritance 104 7.6 Solution of nonlinear equations 104 7.7 Nonlinear solvers in C++: design and implementation 106 7.8 Applying nonlinear solvers: calculating volatility 108 7.9 Summary and conclusions 109 7.10 Exercises and projects 109 8 Advanced Inheritance and Payoff Class Hierarchies 113 8.1 Introduction and objectives 113 8.2 The virtual specifier and memory deallocation 113 8.3 Abstract and concrete classes 115 8.4 Lightweight payoff classes 119 8.5 Super lightweight payoff functions 121 8.6 The dangers of inheritance: a counterexample 123 8.7 Implementation inheritance and fragile base class problem 127 8.8 Two-factor payoff functions and classes 127 8.9 Conclusions and summary 130 8.10 Exercises and projects 130 9 Run-Time Behaviour in C++ 133 9.1 Introduction and objectives 133 9.2 An introduction to reflection and self-aware objects 133 9.3 Run-time type information (RTTI) 134 9.4 Casting between types 137 9.5 Client-server programming and exception handling 140 9.6 try, throw and catch: ingredients of the C++ exception mechanism 141 9.7 C++ implementation 141 9.8 Pragmatic exception mechanisms 145 9.9 Conclusions and summary 149 9.10 Exercises and research 149 10 An Introduction to C++ Templates 153 10.1 Introduction and objectives 153 10.2 My first template class 154 10.3 Template functions 158 10.4 Consolidation: understanding templates 159 10.5 Summary and conclusions 163 10.6 Exercises and projects 164 Part II Data Structures, Templates and Patterns 167 11 Introduction to Generic Data Structures and Standard Template Library (STL) 169 11.1 Introduction and objectives 169 11.2 Complexity analysis 170 11.3 An introduction to data structures 172 11.4 Algorithms 176 11.5 Navigation in data structures: iterators in STL 177 11.6 STL by example: my first example 178 11.7 Conclusions and summary 183 11.8 Exercises and projects 183 12 Creating Simpler Interfaces to STL for QF Applications 187 12.1 Introduction and objectives 187 12.2 Maps and dictionaries 187 12.3 Applications of maps 190 12.4 User-friendly sets 191 12.5 Associative arrays and associative matrices 196 12.6 Applications of associative data structures 199 12.7 Conclusions and summary 200 12.8 Exercises and projects 200 13 Data Structures for Financial Engineering Applications 203 13.1 Introduction and objectives 203 13.2 The property pattern 203 13.3 Property sets 205 13.4 Property sets and data modelling for quantitative finance 213 13.5 Lattice structures 215 13.6 Conclusions and summary 221 13.7 Exercises and projects 221 14 An Introduction to Design Patterns 223 14.1 Introduction and objectives 223 14.2 The software lifecycle 223 14.3 Documentation issues 225 14.4 An Introduction to design patterns 233 14.5 Are we using the wrong design? Choosing the appropriate pattern 237 14.6 CADObject, a C++ library for computer graphics 238 14.7 Using patterns in CADObject 241 14.8 Conclusions and summary 241 14.9 Exercises and projects 241 Part III QF Applications 243 15 Programming the Binomial Method in C++ 245 15.1 Introduction and objectives 245 15.2 Scoping the problem 246 15.3 A short overview of the binomial method 246 15.4 Software requirements for a binomial solver 249 15.5 Class design and class structure 250 15.6 Applying design patterns 252 15.7 The builder and director classes 255 15.8 The process and the steps 258 15.9 Test cases and examples 259 15.10 Conclusions and summary 260 15.11 Exercises and questions 260 16 Implementing One-Factor Black Scholes in C++ 265 16.1 Introduction and objectives 265 16.2 Scope and assumptions 265 16.3 Assembling the C++ building blocks 267 16.4 Modelling the black scholes PDE 267 16.5 Finite difference schemes 270 16.6 Test cases and presentation in excel 276 16.7 Summary 279 16.8 Exercises and projects 279 17 Two-Factor Option Pricing: Basket and Other Multi-Asset Options 283 17.1 Introduction and objectives 283 17.2 Motivation and background 283 17.3 Scoping the problem: PDEs for basket options 285 17.4 Modelling basket option PDE in UML and C++ 286 17.5 The finite difference method for two-factor problems 297 17.6 Discrete boundary and initial conditions 298 17.7 Assembling the system of equations 299 17.8 Post processing and output 301 17.9 Summary and conclusions 302 17.10 Exercises and projects 302 18 Useful C++ Classes for Numerical Analysis Applications in Finance 305 18.1 Introduction and objectives 305 18.2 Solving tridiagonal systems 305 18.3 An introduction to interpolation 310 18.4 Summary and conclusions 313 19 Other Numerical Methods in Quantitative Finance 315 19.1 Introduction and objectives 315 19.2 The trinomial method for assets 315 19.3 Lattice data structures 318 19.4 Trinomial tree for the short rate 318 19.5 The multidimensional binomial method 321 19.6 Generic lattice structures 322 19.7 Approximating exponential functions 326 19.8 Summary and conclusions 326 19.9 Exercises 326 20 The Monte Carlo Method Theory and C++ Frameworks 327 Dr. Joerg Kieritz and Daniel J. Duffy 20.1 Introduction and objectives 327 20.2 A short history of the Monte Carlo (MC) method 327 20.3 Examples of the application of the Monte Carlo method 327 20.4 The Monte Carlo method in quantitative finance 333 20.5 Software architecture for the Monte Carlo method 337 20.6 Examples and test cases 338 20.7 Summary and conclusions 340 20.8 Appendix: comparing Monte Carlo with other numerical methods 340 20.9 Exercises and projects 341 21 Skills Development: from White Belt to Black Belt 345 21.1 Introduction and objectives 345 21.2 Review of book 345 21.3 Part I: C++ essential skills 345 21.4 Part II: data structures, templates and patterns 346 21.5 Part III: applications in quantitative finance 347 21.6 Part IV: background information 347 21.7 Choosing a programming paradigm 348 21.8 Summary and conclusions 349 Part IV Background Information 351 22 Basic C Survival Guide 353 22.1 Introduction and objectives 353 22.2 Basic data types 353 22.3 The C preprocessor 354 22.4 Pointers and references 355 22.5 Other useful bits and pieces 357 22.6 What to avoid in c 357 22.7 Test case: numerical integration in one dimension 358 22.8 Conclusions and summary 359 22.9 Exercises 359 23 Advanced C Syntax 363 23.1 Introduction and objectives 363 23.2 Fixed-size and dynamic arrays 364 23.3 Multi-dimensional arrays 364 23.4 Introduction to structures 365 23.5 Unions 366 23.6 Useful C libraries 366 23.7 Test case: linear regression 367 23.8 Conclusions and summary 370 23.9 Exercises 370 24 Datasim Visualisation Package in Excel: Drivers and Mechanisms 373 24.1 Introduction and objectives 373 24.2 Fundamental functionality in the package 373 24.3 Basic driver functionality 373 24.4 Excel mechanisms 376 24.5 Option values and sensitivities in excel 380 24.6 Finite difference method 384 24.7 Summary and conclusions 387 24.8 Exercises and projects 387 25 Motivating COM and Emulation in C++ 391 25.1 Introduction and objectives 391 25.2 A short history of COM 391 25.3 An introduction to multiple inheritance (MI) 391 25.4 Interfaces and multiple inheritance 396 25.5 Virtual function tables 399 25.6 Summary 399 26 COM Fundamentals 401 26.1 Introduction and objectives 401 26.2 Interfaces in COM 401 26.3 The IUnknown interface 401 26.4 Using IUnknown 402 26.5 Defining new versions of components 406 26.6 Summary 406 References 407 Index 409