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QF205 - Computing Technology For Finance
Week 10

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Preparations
Dr. Zhao Yibao  Get your laptop ready.
Senior Lecturer
Of Quantitative
 Launch Jupyter notebook and open “QF205 Notebook WK10.ipynb”.
Finance
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Quick Review of Week 09

 Classes
 Class Attributes and Instance Attributes
 Instance Methods, Class Methods and Static
QF205
Methods COMPUTING
TECHNOLOGY
 Scope and Namespace (Functions vs Classes) FOR FINANCE

 Inheritance
 Private Attributes
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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This week, we’ll explore Numpy, Pandas and
Matplotlib and their applications in

 Stock Chart and Moving Average Crossover

QF205
COMPUTING
TECHNOLOGY  Option Pricing by the Binomial Tree
FOR FINANCE

Method (revisited)

Dr. Zhao Yibao

 Option Pricing by the Monte Carlo Method
Senior Lecturer
Of Quantitative
Finance
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 How to import/export data from/to an

Excel file?
 How to write results to an Excel file? QF205
COMPUTING
 How to import data from a csv file? TECHNOLOGY
FOR FINANCE

 How to import data from an HTML file?

 How to manipulate DataFrame/Series?
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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 How to manipulate ndarray? QF205

COMPUTING
TECHNOLOGY

 How to generate random numbers? FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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 How to plot a stock price (line) chart?

QF205
 How to plot a stock prices OHLC COMPUTING
TECHNOLOGY
FOR FINANCE

candlestick chart?

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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stock line chart

Moving Average Crossover
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
.csv
Finance
01 # Moving Average Crossover Slide
02 import pandas as pd 009
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03 import numpy as np
04 import matplotlib.pyplot as plt
05 plt.rcParams["figure.figsize"]=[12,8] # (optional)
06 data=pd.read_csv('CC3.SI.csv',index_col=0)
07 data.drop(data.index[data['Volume']==0],inplace=True)
08 data['15d']= np.round(data['Close'].rolling(window=15).mean(),3)
09 data['50d']= np.round(data['Close'].rolling(window=50).mean(),3)
10 x=data['15d']-data['50d']
11 x[x>0]=1 AppMovingAverageCrossover.py

21 lines
12 x[x<=0]=0 QF205
13 y=x.diff() COMPUTING
14 idxSell=y.index[y<0] TECHNOLOGY
FOR FINANCE
15 idxBuy=y.index[y>0]
16 data['crossSell']=np.nan
17 data.loc[idxSell,'crossSell']=data.loc[idxSell,'Close']
18 data['crossBuy']=np.nan
19 data.loc[idxBuy,'crossBuy']=data.loc[idxBuy,'Close']
20 data[['Close', '15d', '50d','crossSell','crossBuy']].plot( Dr. Zhao Yibao
style=['k-','b-','c-','ro','yo'],linewidth=1) Senior Lecturer
21 plt.show() Of Quantitative
Finance
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 Read a CSV (comma-separated) file into DataFrame (pandas.read_csv)
 Comparison operators on DataFrame, Series and Numpy ndarrays
 Logical operators on DataFrame, Series and Numpy ndarrays
 Drop rows and columns in DataFrame (pandas.DataFrame.drop)
 DataFrame and Series
 Rolling window calculations (pandas.Series.rolling)
QF205
 Subtract two Series (-) COMPUTING
TECHNOLOGY
 Boolean indexing FOR FINANCE

 Assignment statements
 1st discrete difference of a Series (Series.diff)
 DataFrame indexing and selection Dr. Zhao Yibao
Senior Lecturer
 Make plots of DataFrame using matplotlib (pandas.DataFrame.plot) Of Quantitative
Finance
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QF205
*** COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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02 import pandas as pd
QF205
03 import numpy as np
COMPUTING
TECHNOLOGY
04 import matplotlib.pyplot as plt
FOR FINANCE

plt.rcParams["figure.figsize"]=[12,8]
(Dr. Z: plt has an attribute rcParams, which is a dictionary-like object.)
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

pd.read_csv
Senior Lecturer
Of Quantitative
Finance
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Read CSV (comma separated values) file into DataFrame

pandas.read_csv(filepath_or_buffer, sep=', ', delimiter=None,
header='infer', names=None, index_col=None, usecols=None,
squeeze=False, prefix=None, mangle_dupe_cols=True, dtype=None,
1
engine=None, 2
converters=None, 3
true_values=None, false_values=None,
skipinitialspace=False, skiprows=None, nrows=None, na_values=None,
keep_default_na=True, na_filter=True, verbose=False,
skip_blank_lines=True, parse_dates=False,
QF205 infer_datetime_format=False, keep_date_col=False, date_parser=None,
COMPUTING
TECHNOLOGY 4
dayfirst=False, iterator=False, chunksize=None,
FOR FINANCE compression='infer', thousands=None, decimal=b'.',
lineterminator=None, quotechar='"', quoting=0, escapechar=None,
comment=None, encoding=None, dialect=None, tupleize_cols=False,
error_bad_lines=True, warn_bad_lines=True, skipfooter=0,
skip_footer=0, doublequote=True, delim_whitespace=False,
as_recarray=False, compact_ints=False, use_unsigned=False, (Dr. Z: Is there
Dr. Zhao Yibao low_memory=True, buffer_lines=None, memory_map=False,
Senior Lecturer float_precision=None) a *- or **-
Of Quantitative
Finance
Do Not Test parameter?)
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
Do Not Test
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 header=0

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

dataframe
header='infer'

header=0, w/o name

Dr. Zhao Yibao
Senior Lecturer
Of Quantitative Do Not Test
Finance
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QF205
COMPUTING
TECHNOLOGY

dataframe
FOR FINANCE

header=None
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative Do Not Test
Finance
 Slide
data=pd.read_csv('CC3.SI.csv', names=range(7,0,-1))
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 header=None

QF205
COMPUTING

dataframe
TECHNOLOGY
FOR FINANCE

names=range(7,0,-1)
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide data=pd.read_csv('CC3.SI.csv', header=0, names=range(7,0,-1))
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QF205
COMPUTING
TECHNOLOGY
header=0
+
FOR FINANCE

names=range(7,0,-1)
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Do Not Test
Finance
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QF205
COMPUTING (A) data=pd.read_csv('CC3.SI.csv', header=0, names=range(7,0,-1))
TECHNOLOGY
FOR FINANCE
(B) data=pd.read_csv('CC3.SI.csv', names=range(7,0,-1))

(C) data=pd.read_csv('CC3.SI.csv', header=0)

Dr. Zhao Yibao (D) data=pd.read_csv('CC3.SI.csv')

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

index_col=0
Senior Lecturer
Of Quantitative
Finance
Do Not Test
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer Do Not Test
Of Quantitative
Finance
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data.columns

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

data.index

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205

pandas.Index:
COMPUTING
TECHNOLOGY
FOR FINANCE
 Indexing
 Slicing
 list-like object (Python)
 array-like object, 1-D (Numpy)
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

 Indexing pandas.Index: list-like/array-like
Senior Lecturer
Of Quantitative
 Slicing
 slide 38
Finance
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data['Open'] data['Adj Close']
syntactic sugar data.Open

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

This is a Series. This is a Series.

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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 pandas.Series: One-dimensional
ndarray with axis labels.
 pandas.DataFrame: Two-
dimensional size-mutable, tabular
QF205
COMPUTING
data structure with labeled axes
TECHNOLOGY
FOR FINANCE (rows and columns). Can be
thought of as a dict-like container
for Series objects.
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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DataFrame[colname]:

Series corresponding to
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE
colname
(Example: data['Open'])
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
Do Not Test parse_dates=True
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data.values
(numpy.ndarray)
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide DataFrame.drop(labels, axis=0, level=None, inplace=False, errors='raise')
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data.drop(data.index[data['Volume']==0],inplace=True)

Drop a row.
QF205
COMPUTING
TECHNOLOGY
Do Not Test
FOR FINANCE
Volume=0

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao data['Volume']

Senior Lecturer
Of Quantitative
Finance
is a Series.
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data['Volume'] is a Series.
data['Volume']==0
QF205
COMPUTING
returns a Series of True and
TECHNOLOGY
FOR FINANCE False with the same labels.
Comparison between
a Series and a scalar
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
results a Series.
Finance
 Slide
Boolean Indexing (Dr. Z: Does myList support it?
See Week 10 Extra Exercise.)
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Lists do not support

Boolean indexing.

Numpy ndarrays
support Boolean QF205
COMPUTING
indexing. TECHNOLOGY
FOR FINANCE

Serieses also
support Boolean
indexing.
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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data.index

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative Do Not Test
Finance
 Slide data.drop(data.index[data['Volume']==0],inplace=True)
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Do Not Test

It’s gone!
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

If using “inplace=False”,
Dr. Zhao Yibao we’ll get a copy. data will
Senior Lecturer
Of Quantitative remain unchanged.
Finance
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(default value) Do Not Test

QF205
COMPUTING DataFrame.drop(labels, axis=0)
TECHNOLOGY
FOR FINANCE
0/'index'
DataFrame.drop(labels, axis=1)
Dr. Zhao Yibao 1/'columns'
Senior Lecturer
Of Quantitative
Finance
 Slide
Series.rolling(window, min_periods=None, freq=None,
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center=False, win_type=None, on=None, axis=0,
Do Not Test
closed=None)

Provides rolling window calculations. (.sum(), .mean(), …)

data['15d']= np.round(data['Close'].rolling(window=15).mean(),3)
data['50d']= np.round(data['Close'].rolling(window=50).mean(),3)

QF205
COMPUTING
We cannot use the “dot notation”
TECHNOLOGY
FOR FINANCE to add a column to a DataFrame.
data['15d']= np.round(data['Close'].rolling(15).mean(),3)
data['50d']= np.round(data['Close'].rolling(50).mean(),3)

Dr. Zhao Yibao  Series.rolling  Rolling Object

Senior Lecturer
Of Quantitative  RollingObject.mean()  Series
Finance
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Two columns
QF205
COMPUTING
TECHNOLOGY
were added.
FOR FINANCE

dict-like
(Dr. Z: How to add
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
a new item in a
dictionary?)
NaN?
Finance
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1
2
3
4
5 NaN is a float-type number.
6
7 Value comparison with an
8 NaN will always result a QF205
COMPUTING
9 False. TECHNOLOGY
10 FOR FINANCE

11 Any arithmetic operation

12 on an NaN will result NaN.
13
(Dr. Z: Why!? Why!? Can we just
14
return those non-NaN values?) Dr. Zhao Yibao
15
Senior Lecturer
.rolling(15).mean() Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE
np.round(Series, 3)

Series.round(3)
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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Subtraction of Two Series

(having the same labels)
(Dr. Z: What if they have different labels?)
QF205

x: pandas.core.series.Series
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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 Boolean Indexing
 Assignment

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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https://pandas.pydata.org/pandas-docs/stable/generated/pandas.Series.diff.html

Do Not Test
QF205
COMPUTING
Series.diff
TECHNOLOGY
FOR FINANCE
returns a Series of
the same length
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
(and same labels).
Finance
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 Boolean Indexing
QF205
COMPUTING
 np.logical_or
(element-wise or)
TECHNOLOGY
FOR FINANCE

Do Not Test
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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 y is a Series
 y.index is DatetimeIndex type
 Boolean Indexing

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

 idxBuy
 idxSell
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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 np.nan
Another
QF205
column is
COMPUTING
TECHNOLOGY
FOR FINANCE
created.

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE
data['Close'][idxSell]

Dr. Zhao Yibao

Senior Lecturer
chained indexing: copy or reference?
Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE data[idxSell]['Close']
Q: Will the above work too?
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
A: No.
Finance
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In a pandas.DataFrame,
QF205
COMPUTING
rows and columns use
different indexing methods.
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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 Chained Index

 .loc Indexing
 Assignment

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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Similarly,
'crossBuy'

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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DataFrame.plot(x=None,
y=None, kind='line',
ax=None, subplots=False,
sharex=None,
sharey=False,
layout=None,
figsize=None,
use_index=True,
title=None, grid=None,
legend=True, style=None, QF205
logx=False, logy=False, COMPUTING
loglog=False, TECHNOLOGY
xticks=None, yticks=None, FOR FINANCE

xlim=None, ylim=None,
rot=None, fontsize=None,
colormap=None,
table=False, yerr=None,
xerr=None,
secondary_y=False, Dr. Zhao Yibao
sort_columns=False, Senior Lecturer
**kwds) Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE
Fancy Indexing:
Using a list of
column names as
the index of a
Dr. Zhao Yibao
Senior Lecturer DataFrame results
Of Quantitative
Finance
a DataFrame.
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https://matplotlib.org/devdocs/api/_as_gen/matplotlib.pyplot.show.html

Do Not Test

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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That’s all for the

QF205
COMPUTING
TECHNOLOGY
explanation of the
sample code.
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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Next, … Do Not Test

candlestick_ohlc

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

fill_between
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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https://matplotlib.org/api/_as_gen/matplotlib.pyplot.fill_between.html

x, y1, y2=0
QF205
COMPUTING
TECHNOLOGY
**kwargs
FOR FINANCE

plt

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
Do Not Test
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https://matplotlib.org/api/_as_gen/matplotlib.axes.Axes.fill_between.html

Do Not Test Another fill_between.

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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List also can! 

y1 can also be a
scalar! 

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative Do Not Test
Finance
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**kwargs

alpha

QF205
COMPUTING color
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao Do Not Test

Senior Lecturer
Of Quantitative
Finance
 Slide
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# fill_between
import pandas as pd
They are Serieses.
import matplotlib.pyplot as plt
plt.rcParams["figure.figsize"]=[12,8] # (optional)

data=pd.read_csv('CC3.SI.csv',index_col=0,parse_dates=True)
data.drop(data.index[data['Volume']==0],inplace=True)

ma=data['Close'].rolling(15).mean()
QF205 mstd=data['Close'].rolling(15).std()
COMPUTING
TECHNOLOGY
FOR FINANCE plt.plot(data.index, data['Close'], 'k')
plt.plot(ma.index, ma, 'b')
plt.fill_between(mstd.index, ma-2*mstd, ma+2*mstd,
color='b', alpha=0.2)
plt.show()
Dr. Zhao Yibao
Senior Lecturer (Dr. Z: Do not panic if you see any warning message. Simply amend the code according to the suggestion in
Of Quantitative the warning message.)
Finance
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objectName: checkbox_ma objectName: checkbox_mstd

layoutName: verticalLayout
Do Not Test
 1 label
QF205
 2 checkbox
COMPUTING
TECHNOLOGY
 1 axes
FOR FINANCE

GUI
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
PyQt5
 Slide
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QF205
a .ui file +
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao PyQT5 template.py

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205 Template for adding a figure in a GUI.

COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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self

ax1
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

(Dr. Z: The rest is to add an axes in a

figure in a canvas widget in the
Dr. Zhao Yibao verticalLayout in the QMainWindow.)
Senior Lecturer
Of Quantitative
Finance
 Slide
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self
 self.plot2
 self.plot3

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

plt.setp
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
visible
Finance
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A sequence
of sequences.
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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Do Not Test
fig=plt.figure()
1
ax=plt.axes()
2

QF205 3
COMPUTING
TECHNOLOGY
FOR FINANCE

(Dr. Z: Can we develop a GUI for this?)

1. Use .subplots() to return an ax, or ...

Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
ax 2. Use date2num to convert dates to float days
3. Use zip to create the sequence of tuples.
Finance
 Slide
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001/137 Challenge: Modify “AppFillBetween.ui” (using Qt Designer)
and the code “AppFillBetweenUI.py” to obtain the same GUI
as shown in the following two slides. References:
 http://doc.qt.io/qt-5/qfiledialog.html
from PyQt5.QtWidgets import QFileDialog  https://pythonspot.com/pyqt5-file-dialog/

QFileDialog.getOpenFileName
options = QFileDialog.Options()
QF205 options |= QFileDialog.DontUseNativeDialog
COMPUTING
TECHNOLOGY fname, _ = QFileDialog.getOpenFileName(self,'Open file',
FOR FINANCE os.getcwd(),'CSV(*.csv)')

filename (string type) Do Not Test

Q: What if I use the following?
Dr. Zhao Yibao
Senior Lecturer fname = QFileDialog.getOpenFileName(self,'Open file',
Of Quantitative os.getcwd(),'CSV(*.csv)')
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative (Clicking on “Load Data” button, followed by choosing another csv file, say S68.SI.csv, we obtain another plot.)
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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Next, let’s learn

QF205
COMPUTING
some basics of
Numpy and Pandas.
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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Learning Outcomes:
ndarrays and DataFrames/Serieses
 Creation
QF205
COMPUTING
TECHNOLOGY
 Indexing and Slicing
FOR FINANCE
 Assignment
 Some Operations
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
 Some Functions
Finance
 Slide

Python
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Numpy
Error!
QF205
COMPUTING
Error!
TECHNOLOGY
FOR FINANCE Error!
False

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
Pandas Solution:
 List comprehension
 Slide

Python
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QF205
Numpy
COMPUTING
TECHNOLOGY Error!
FOR FINANCE

Numpy has multi-dimensional arrays and

Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Pandas supports vectorized computation.
Finance
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numpy.ndarray

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

multi-Dimensional
1D, 2D, 3D, …, n-D, … Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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numpy.array
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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1 2
3 4 QF205
COMPUTING
TECHNOLOGY
FOR FINANCE
numpy.ndarray
multi-Dimensional
1D, 2D, 3D, …, n-D, … Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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Python
1 2
3 4
QF205
COMPUTING
Numpy DataFrame
TECHNOLOGY
FOR FINANCE (2D only)

Series
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
Pandas (1D only)
 Slide https://pandas.pydata.org/pandas-docs/stable/generated/pandas.DataFrame.html
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

1 2
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
3 4
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
Indexing & Slicing
FOR FINANCE

(for Numpy ndarray and Pandas DataFrame/Series)

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide

Q: What is the output? (Indexing vs Slicing)

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0 1 2
3 4 5
6 7 8
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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multidimensional indexing

Error

QF205 boolean indexing

COMPUTING
TECHNOLOGY
FOR FINANCE
Error

fancy indexing

Error
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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multidimensional indexing
multidimensional slicing
QF205
COMPUTING
TECHNOLOGY
boolean indexing
FOR FINANCE
fancying indexing
combined indexing

Dr. Zhao Yibao Indexing & Slicing (numpy.ndarray)

Senior Lecturer
Of Quantitative https://docs.scipy.org/doc/numpy-1.13.0/user/basics.indexing.html
Finance
 Slide
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QF205
x[1]
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
x[[1]]
Finance
 Slide
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y=x[1:3]
y is a copy.
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

y changed, but x didn’t.

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Hint: For a list x, x[1:3] is a copy. Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
Copy or View? (1D ndarray) 093
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y=x[1:3]
y is a view. QF205
COMPUTING
TECHNOLOGY
FOR FINANCE
y changed, x also.

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Hint: For a numpy array x, x[1:3] is a view. Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
y (slicing of the 095
002/137

ndarray x) is a view;

z (fancy indexing of
the ndarray x) is a QF205
COMPUTING

copy.
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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x[:2][0]=100
QF205
COMPUTING
(Dr. Z: This is called chained indexing. It is difficult to
TECHNOLOGY
FOR FINANCE tell whether the assignment happens to a copy or a
view of x. It depends on the implementation of
__getitem__ and __setitem__. So, we won’t explore
Dr. Zhao Yibao
further what will happen on it.)
Senior Lecturer
Of Quantitative
Finance
 Slide
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001/137 https://pandas.pydata.org/pandas-docs/stable/indexing.html#indexing-and-selecting-data

DataFrame
 Selection via [ ]
 Selection by Position (.iloc)
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

 Selection by Label (.loc)

Dr. Zhao Yibao
Senior Lecturer
 Boolean Indexing
Of Quantitative
Finance
 Slide
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1
QF205
COMPUTING
2
TECHNOLOGY 3
FOR FINANCE
4
5

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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1
DataFrame

Indexing:
column
2 +
Series

Fancy indexing:
column
QF205
COMPUTING
3 +
TECHNOLOGY DataFrame
FOR FINANCE

4 Slicing: row + DataFrame

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
6 [ ]
Finance
 Slide
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ndarray DataFrame

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

(Dr. Z: DataFrames use .loc and .iloc for multidimensional indexing.)

Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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.iloc integer position based

indexing
QF205 fancy indexing
COMPUTING
TECHNOLOGY
FOR FINANCE slicing

Boolean indexing

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205
df.iloc[1]  df.iloc[1,:]
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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1
QF205
COMPUTING
2
TECHNOLOGY 3
FOR FINANCE
4

6
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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iloc 1

 row 2

QF205
COMPUTING
TECHNOLOGY  row 3
FOR FINANCE

 row 4

 row 5
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative 6

Finance
 Slide
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.loc

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205 1
COMPUTING
TECHNOLOGY 2
FOR FINANCE 3
4

6
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY 3
FOR FINANCE

 4

5
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative 6
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Row-major order

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative https://en.wikipedia.org/wiki/Row-_and_column-major_order
Finance
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https://jakevdp.github.io/PythonDataScien
ceHandbook/02.05-computation-on-arrays-
broadcasting.html

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Stretching and
Dr. Zhao Yibao
Broadcasting
Senior Lecturer
Of Quantitative
(ndarray)
Finance
 Slide
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Default: float type

QF205 dtype=int  int type

COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide

It seems that
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pandas.DataFrame
does not have
ndarray’s
QF205
COMPUTING
TECHNOLOGY
“Stretching and
FOR FINANCE
Q: Why is it 2.0?
A: NaN is float type.
Broadcasting”.

Dr. Zhao Yibao

Senior Lecturer
So what? 😉😉
Of Quantitative
Finance
 Slide
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QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Subtraction of Two Series

with different labels.

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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QF205 That’s all for today.

COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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𝜏𝜏 = 𝑇𝑇 − 𝑡𝑡

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
(optional)
Finance
 Slide For example: 𝑆𝑆 = 50, 𝐾𝐾 = 50, 𝑟𝑟 = 0.04, 𝑞𝑞 = 0.01, 𝜏𝜏 = 183/365, σ = 0.4, and 𝑁𝑁 = 3.
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𝜏𝜏 𝜎𝜎 ∆𝑡𝑡 1 𝑒𝑒 𝑟𝑟−𝑞𝑞 ∆𝑡𝑡 −𝑑𝑑
1. ∆𝒕𝒕 = , 𝒖𝒖
= 𝑒𝑒 , 𝒅𝒅 = , 𝒑𝒑 =
𝑁𝑁 𝑢𝑢 𝑢𝑢−𝑑𝑑
2. (𝑖𝑖 = 3)
 (𝑗𝑗 = 0) 𝒇𝒇𝟑𝟑,𝟎𝟎 = max 0, 𝑆𝑆𝑢𝑢0 𝑑𝑑 3−0 − 𝐾𝐾 Call , 𝒇𝒇𝟑𝟑,𝟎𝟎 = max 0, 𝐾𝐾 − 𝑆𝑆𝑢𝑢0 𝑑𝑑 3−0 Put
 (𝑗𝑗 = 1) 𝒇𝒇𝟑𝟑,𝟏𝟏 = max 0, 𝑆𝑆𝑢𝑢1 𝑑𝑑 3−1 − 𝐾𝐾 Call , 𝒇𝒇𝟑𝟑,𝟏𝟏 = max 0, 𝐾𝐾 − 𝑆𝑆𝑢𝑢1 𝑑𝑑 3−1 Put
 (𝑗𝑗 = 2) 𝒇𝒇𝟑𝟑,𝟐𝟐 = max 0, 𝑆𝑆𝑢𝑢2 𝑑𝑑 3−2 − 𝐾𝐾 Call , 𝒇𝒇𝟑𝟑,𝟐𝟐 = max 0, 𝐾𝐾 − 𝑆𝑆𝑢𝑢2 𝑑𝑑 3−2 Put
 (𝑗𝑗 = 3) 𝒇𝒇𝟑𝟑,𝟑𝟑 = max 0, 𝑆𝑆𝑢𝑢3 𝑑𝑑 3−3 − 𝐾𝐾 Call , 𝒇𝒇𝟑𝟑,𝟑𝟑 = max 0, 𝐾𝐾 − 𝑆𝑆𝑢𝑢3 𝑑𝑑 3−3 Put

3.  𝜏𝜏 → tau
 (𝑖𝑖 = 2)
QF205
COMPUTING o (𝑗𝑗 = 0) 𝒇𝒇𝟐𝟐,𝟎𝟎 = 𝑒𝑒 −𝑟𝑟∆𝑡𝑡 [𝑝𝑝 � 𝑓𝑓3,1 + 1 − 𝑝𝑝 � 𝑓𝑓3,0 ]  ∆𝑡𝑡 → deltaT
TECHNOLOGY o (𝑗𝑗 = 1) 𝒇𝒇𝟐𝟐,𝟏𝟏 = 𝑒𝑒 −𝑟𝑟∆𝑡𝑡 [𝑝𝑝 � 𝑓𝑓3,2 + 1 − 𝑝𝑝 � 𝑓𝑓3,1 ]
FOR FINANCE
o (𝑗𝑗 = 2) 𝒇𝒇𝟐𝟐,𝟐𝟐 = 𝑒𝑒 −𝑟𝑟∆𝑡𝑡 [𝑝𝑝 � 𝑓𝑓3,3 + 1 − 𝑝𝑝 � 𝑓𝑓3,2 ]  𝒇𝒇𝒊𝒊,𝒋𝒋 → f[i][j]
 (𝑖𝑖 = 1)
o (𝑗𝑗 = 0) 𝒇𝒇𝟏𝟏,𝟎𝟎 = 𝑒𝑒 −𝑟𝑟∆𝑡𝑡 [𝑝𝑝 � 𝑓𝑓2,1 + 1 − 𝑝𝑝 � 𝑓𝑓2,0 ]
o (𝑗𝑗 = 1) 𝒇𝒇𝟏𝟏,𝟏𝟏 = 𝑒𝑒 −𝑟𝑟∆𝑡𝑡 [𝑝𝑝 � 𝑓𝑓2,2 + 1 − 𝑝𝑝 � 𝑓𝑓2,1 ]
 (𝑖𝑖 = 0)
o (𝑗𝑗 = 0) 𝒇𝒇𝟎𝟎,𝟎𝟎 = 𝑒𝑒 −𝑟𝑟∆𝑡𝑡 [𝑝𝑝 � 𝑓𝑓1,1 + 1 − 𝑝𝑝 � 𝑓𝑓1,0 ]
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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f[0][0]
f[1][0]
f[1][1]
QF205
COMPUTING f[2][0]
TECHNOLOGY
FOR FINANCE f[2][1]
f[2][2]
𝒇𝒇𝒊𝒊,𝒋𝒋 → f[i][j] f[3][0]
f[3][1]
Dr. Zhao Yibao
Senior Lecturer 𝑓𝑓3,0 = 1.1 → f[3][0]=1.1 f[3][2]

Of Quantitative f[3][3]
Finance
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Three Implementations

1. Nested list with for loop

QF205
COMPUTING
2. Nested list with list comprehension
TECHNOLOGY
FOR FINANCE

3. Numpy ndarray

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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Given 𝑁𝑁, …

𝑓𝑓𝑁𝑁,𝑗𝑗 , 𝑗𝑗 = 0, 1, … , 𝑁𝑁 𝑁𝑁 = 3: 𝑓𝑓3,0 , 𝑓𝑓3,1 , 𝑓𝑓3,2 , 𝑓𝑓3,3

𝑓𝑓𝑖𝑖,𝑗𝑗 , 𝑖𝑖 = 𝑁𝑁 − 1, … , 0; 𝑗𝑗 = 0, 1, … , 𝑖𝑖 𝑁𝑁 = 3: 𝑓𝑓2,0 , 𝑓𝑓2,1 , 𝑓𝑓2,2 ; 𝑓𝑓1,0 , 𝑓𝑓1,1 ; 𝑓𝑓0,0

QF205
COMPUTING For example, 𝑁𝑁 = 3
TECHNOLOGY
FOR FINANCE
𝑓𝑓0,0
𝑓𝑓1,0 𝑓𝑓1,1
𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i][j] list, ndarray

𝑓𝑓2,0 𝑓𝑓2,1 𝑓𝑓2,2

Dr. Zhao Yibao
Senior Lecturer
Of Quantitative 𝑓𝑓3,0 𝑓𝑓3,1 𝑓𝑓3,2 𝑓𝑓3,3
𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i,j] ndarray
Finance
 Slide
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𝑓𝑓0,0 N=3
f=[[0.0 for j in range(0,i+1)]
𝑓𝑓1,0 𝑓𝑓1,1
for i in range(0,N+1)]
𝑓𝑓2,0 𝑓𝑓2,1 𝑓𝑓2,2

QF205
𝑓𝑓3,0 𝑓𝑓3,1 𝑓𝑓3,2 𝑓𝑓3,3
𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i][j] (list)
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
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𝑓𝑓0,0 import numpy as np

𝑓𝑓1,0 𝑓𝑓1,1 N=3
f=np.zeros((N+1,N+1))
𝑓𝑓2,0 𝑓𝑓2,1 𝑓𝑓2,2
𝑓𝑓3,0 𝑓𝑓3,1 𝑓𝑓3,2 𝑓𝑓3,3

QF205
COMPUTING
(Numpy ndarray)
TECHNOLOGY
FOR FINANCE
𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i,j]

Dr. Zhao Yibao

𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i][j]
Senior Lecturer
Of Quantitative
Finance
 Slide
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𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i][j]
QF205
COMPUTING
TECHNOLOGY
FOR FINANCE for j in range(0,N+1):
fc[N][j]=max(0, S*(u**j)*(d**(N-j))-K)
fp[N][j]=max(0, K-S*(u**j)*(d**(N-j)))
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide
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𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i][j]
QF205
p1=1-p
COMPUTING ert=math.exp(-r*deltaT)
TECHNOLOGY
FOR FINANCE
for i in range(N-1,0-1,-1):
for j in range(0,i+1):
fc[i][j]=ert*(p*fc[i+1][j+1]+p1*fc[i+1][j])
fp[i][j]=ert*(p*fp[i+1][j+1]+p1*fp[i+1][j])
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide # nested list with for loop
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2&3
def V_binomial_tree_py(S,K,r,q,tau,sigma,N=100):
# 1.
deltaT=tau/N
u=math.exp(sigma*math.sqrt(deltaT))
d=1/u
p=(math.exp((r-q)*deltaT)-d)/(u-d)
# 2.
fc=[[0.0 for j in range(0,i+1)] for i in range(0,N+1)]
fp=[[0.0 for j in range(0,i+1)] for i in range(0,N+1)]

for j in range(0,N+1):
fc[N][j]=max(0, S*(u**j)*(d**(N-j))-K)
fp[N][j]=max(0, K-S*(u**j)*(d**(N-j)))
Create fc’s
storage
# 3.
p1=1-p
QF205 ert=math.exp(-r*deltaT)
COMPUTING
TECHNOLOGY for i in range(N-1,0-1,-1):

before using
for j in range(0,i+1):
FOR FINANCE fc[i][j]=ert*(p*fc[i+1][j+1]+p1*fc[i+1][j])
fp[i][j]=ert*(p*fp[i+1][j+1]+p1*fp[i+1][j])
# 4.

fc[i][j].
c=fc[0][0]
p=fp[0][0]
return (c, p)

if __name__=='__main__':
Dr. Zhao Yibao S=50.0; K=50.0; tau=183/365;
sigma=0.4; r=0.04; q=0.01
Senior Lecturer print('Call: {0[0]}, Put: {0[1]}'.format(
Of Quantitative V_binomial_tree_py(S,K,r,q,tau,sigma)))
Finance
 Slide # nested list with list comprehension
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Create fc’s
def V_binomial_tree_py2(S,K,r,q,tau,sigma,N=100):
# 1.
deltaT=tau/N
u=math.exp(sigma*math.sqrt(deltaT))
d=1/u
p=(math.exp((r-q)*deltaT)-d)/(u-d)
# 2.
storage
before using
fc=[0]*(N+1)
fp=[0]*(N+1)

fc[N]=[max(0, S*(u**j)*(d**(N-j))-K) for j in range(0,N+1)]

fp[N]=[max(0, K-S*(u**j)*(d**(N-j))) for j in range(0,N+1)]

# 3.
fc[i].
p1=1-p
QF205 ert=math.exp(-r*deltaT)
COMPUTING
TECHNOLOGY for i in range(N-1,0-1,-1):
fc[i]=[ert*(p*fc[i+1][j+1]+p1*fc[i+1][j]) for j in range(0,i+1)]
FOR FINANCE fp[i]=[ert*(p*fp[i+1][j+1]+p1*fp[i+1][j]) for j in range(0,i+1)]

# 4.
c=fc[0][0]
p=fp[0][0]
return (c, p)

if __name__=='__main__':
(using list comprehension)
Dr. Zhao Yibao S=50.0; K=50.0; tau=183/365;
sigma=0.4; r=0.04; q=0.01
Senior Lecturer print('Call: {0[0]}, Put: {0[1]}'.format(
Of Quantitative V_binomial_tree_py2(S,K,r,q,tau,sigma)))
Finance
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(ndarray)
(Dr. Z: Remember ndarrays

QF205
𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i,j] allow vectorized operations?
COMPUTING
TECHNOLOGY
FOR FINANCE
for j in range(0,N+1):
fc[N,j]=max(0, S*(u**j)*(d**(N-j))-K)

Dr. Zhao Yibao

fp[N,j]=max(0, K-S*(u**j)*(d**(N-j)))
Senior Lecturer
Of Quantitative
Finance
 Slide
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001/137 for j in range(0,N+1):
fc[N,j]=max(0, S*(u**j)*(d**(N-j))-K)
fp[N,j]=max(0, K-S*(u**j)*(d**(N-j)))

j=np.arange(0,N+1);
QF205
COMPUTING
Ss=S*(u**j)*(d**(N-j))
vectorized
operations
TECHNOLOGY
FOR FINANCE

fc[N,:]=np.maximum(0, Ss-K)
𝑦𝑦 = 2𝑥𝑥1 + 3 𝑦𝑦1 𝑥𝑥1 3
� 1 ⟹ 𝑦𝑦 = 2 𝑥𝑥 +
𝑦𝑦2 = 2𝑥𝑥2 + 4 2 2 4
fp[N,:]=np.maximum(0, K-Ss)
Dr. Zhao Yibao 𝒀𝒀 = 2𝑿𝑿 + 𝒃𝒃
Senior Lecturer
Of Quantitative
Finance
0:N+1
 Slide
128
001/137 element-wise

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative
Finance
 Slide
129
001/137

𝑓𝑓𝑖𝑖,𝑗𝑗 →f[i,j]
QF205 p1=1-p
COMPUTING
TECHNOLOGY ert=math.exp(-r*deltaT)
FOR FINANCE

for i in range(N-1,0-1,-1):
for j in range(0,i+1):
fc[i,j]=ert*(p*fc[i+1,j+1]+p1*fc[i+1,j])
Dr. Zhao Yibao
Senior Lecturer fp[i,j]=ert*(p*fp[i+1,j+1]+p1*fp[i+1,j])
Of Quantitative
Finance
 Slide
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for i in range(N-1,0-1,-1):
for j in range(0,i+1):
fc[i,j]=ert*(p*fc[i+1,j+1]+p1*fc[i+1,j])
fp[i,j]=ert*(p*fp[i+1,j+1]+p1*fp[i+1,j])

(using vectorized operations)

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

for i in range(N-1,0-1,-1):
fc[i,0:i+1]=ert*(p*fc[i+1,0+1:i+1+1]+p1*fc[i+1,0:i+1])
fp[i,0:i+1]=ert*(p*fp[i+1,0+1:i+1+1]+p1*fp[i+1,0:i+1])
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance
 Slide # Numpy ndarray
131
001/137 import numpy as np

def V_binomial_tree_np(S,K,r,q,tau,sigma,N=100):
# 1.
deltaT=tau/N
u=np.exp(sigma*np.sqrt(deltaT))
d=1/u
p=(np.exp((r-q)*deltaT)-d)/(u-d)
# 2.
fc=np.zeros((N+1,N+1))
fp=np.zeros((N+1,N+1))
j=np.arange(0,N+1,1);
Ss=S*(u**j)*(d**(N-j))
fc[N,:]=np.maximum(0, Ss-K)
fp[N,:]=np.maximum(0, K-Ss)
QF205 # 3.
COMPUTING p1=1-p
ert=np.exp(-r*deltaT)
TECHNOLOGY
for i in range(N-1,0-1,-1):
FOR FINANCE fc[i,0:i+1]=ert*(p*fc[i+1,0+1:i+1+1]+p1*fc[i+1,0:i+1])
fp[i,0:i+1]=ert*(p*fp[i+1,0+1:i+1+1]+p1*fp[i+1,0:i+1])
# 4.
c=fc[0,0]
p=fp[0,0]
return (c, p)

if __name__=='__main__':
Dr. Zhao Yibao S=50.0; K=50.0; tau=183/365;
sigma=0.4; r=0.04; q=0.01
Senior Lecturer print('Call: {0[0]}, Put: {0[1]}'.format(
Of Quantitative V_binomial_tree_np(S,K,r,q,tau,sigma)))
Finance
 Slide
132
001/137 Numpy https://docs.scipy.org/doc/numpy/reference/routines.html

 numpy.array
 numpy.arange
 numpy.reshape or numpy.ndarray.reshape
 numpy.isin
 numpy.linspace

QF205  numpy.ones, numpy.zeros, numpy.empty

COMPUTING
TECHNOLOGY  numpy.exp, numpy.sqrt
FOR FINANCE
 numpy.mean, numpy.std, numpy.sum, numpy.cumsum
 numpy.maximum
 numpy.random
 numpy.append, numpy.concatenate
Next!
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
 ...(numpy.linalg)...
Finance
 Slide
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𝜏𝜏 = 𝑇𝑇 − 𝑡𝑡

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

mean
Dr. Zhao Yibao
Senior Lecturer
4 Of Quantitative
Finance
 Slide 𝜏𝜏 𝜏𝜏
134
001/137

2
import numpy as np
def V_MonteCharloSimulation(S,K,r,q,tau,sigma,z):
# 2.
QF205 ST=S*np.exp((r-q-0.5*sigma**2)*tau \
COMPUTING
TECHNOLOGY +sigma*np.sqrt(tau)*z)
FOR FINANCE

(Dr. Z: It is compatible to vectorized operations.)

Dr. Zhao Yibao vector z  vector ST
Senior Lecturer
Of Quantitative
Finance
 Slide
# Monte Carlo Simulation Option Pricing
135
002/137
import numpy as np
def V_MonteCharloSimulation(S,K,r,q,tau,sigma,z):
# 2.
ST=S*np.exp((r-q-0.5*sigma**2)*tau+sigma*np.sqrt(tau)*z) 2
# 3.
hTc=np.maximum(ST-K,0)
hTp=np.maximum(K-ST,0) 3
# 4.
c=np.exp(-r*tau)*np.mean(hTc)
p=np.exp(-r*tau)*np.mean(hTp) 4
return (c, p)
QF205
COMPUTING
if __name__=='__main__': TECHNOLOGY
S=50.0; K=50.0; tau=183/365 FOR FINANCE
sigma=0.4; r=0.04; q=0.01
# 1.
N=10_000_000
np.random.seed(0)
z=np.random.standard_normal(N)
z=np.append(z, -z) #variance reduction by antithetic variates
1 Dr. Zhao Yibao
print('Call: {0[0]}, Put: {0[1]}'.format( Senior Lecturer
V_MonteCharloSimulation(S,K,r,q,tau,sigma,z))) Of Quantitative
Finance
 Slide
136
001/137

QF205
COMPUTING
TECHNOLOGY
FOR FINANCE

Dr. Zhao Yibao

Senior Lecturer
Of Quantitative (See “Summary of
Finance Applications in QF205.pdf”.)
 Slide
137
001/137
 HDB Loan

Next!
 IRAS Income Tax
 Pandigital Formula
 Sudoku Solver

Option Pricing:

Excel!
QF205
COMPUTING
TECHNOLOGY

 Black-Scholes Formula
FOR FINANCE

 Binomial Tree Method

 Monte Carlo Simulation
Method
Dr. Zhao Yibao
Senior Lecturer
Of Quantitative
Finance