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Quality Money Management
Process Engineering and Best Practices for Systematic Trading and Investment
Professionals in financial technology outline the best way to build or buy a program trading system
Andrew Kumiega (Author), Benjamin Van Vliet (Author)
9780123725493, Elsevier Science
Hardback, published 10 April 2008
304 pages
26 x 18.3 x 2.3 cm, 0.85 kg
“Benjamin Van Vliet and Andrew Kumiega give a complete and methodological approach to building trading and investment systems. They cover all you need to know to understand back-testing and prototyping of trading algorithms. Our team had their methodology in mind when they designed our analytical tool, Resolver One, to ensure quality, reliability and consistency when developing trading systems from ideas through prototype to production. A one-stop book for building systematic trading and investment systems.?--Jean Viry-Babel, Head of Sales, ResolverSystems, London, United Kingdom "I believe Kumiega and Van Vliet's blending of two disciplines - Quality and Finance - is the next step in the evolution of the financial industry. This approach will make financial processes more effective and efficient."--M. Zia Hassan, Fellow of the American Society for Quality, Dean Emeritus and Professor, Stuart School of Business, Chicago IL "Andrew Kumiega, a manager in charge of software testing at a Chicago-based trading firm and co- author of ‘Quality Money Management,’ a book that discusses the importance of standards for financial technology, says he is not surprised by the software glitch suffered by Knight because automated trading is still a young industry. It has yet to establish industry-wide standards and frequently suffers from the cross-purposes of three competing groups: traders who view their primary goal as trading success while upholding securities regulations, programmers who focus on coding and creating well designed software, and quantitative analysts who hone in on the mathematics that underpin many trading software efforts. ‘If you look at these three groups, the tactics they employ for effective software testing are all completely different,’ Kumiega said."--Institutional Investor
The financial markets industry is at the same crossroads as the automotive industry in the late 1970s. Margins are collapsing and customization is rapidly increasing. The automotive industry turned to quality and its no coincidence that in the money management industry many of the spectacular failures have been due largely to problems in quality control. The financial industry in on the verge of a quality revolution. New and old firms alike are creating new investment vehicles and new strategies that are radically changing the nature of the industry. To compete, mutual funds, hedge fund industries, banks and proprietary trading firms are being forced to quicklyy research, test and implement trade selection and execution systems. And, just as in the early stages of factory automation, quality suffers and leads to defects. Many financial firms fall short of quality, lacking processes and methodologies for proper development and evaluation of trading and investment systems. Authors Kumiega and Van Vliet present a new step-by-step methodology for such development. Their methodology (called K
Contents
Preface
CHAPTER 1 Introduction
CHAPTER 2 Key Concepts and Definitions of Terms
CHAPTER 3 Overview of the Trading/Investment System Development Methodology
CHAPTER 4 Managing Design and Development
CHAPTER 5 Types of Trading Systems
CHAPTER 6 Stage 0: The Money Document
STAGE 1: Design and Document Trading/Investment Strategy
CHAPTER 7 STAGE 1: Overview
CHAPTER 8 Describe Trading/Investment Idea
CHAPTER 9 Research Quantitative Methods
CHAPTER 10 Prototype in Modeling Software
CHAPTER 11 Check Performance
CHAPTER 12 Gate 1
STAGE 2: Backtest
CHAPTER 13 STAGE 2: Overview
CHAPTER 14 Gather Historical Data
CHAPTER 15 Develop Cleaning Algorithms
CHAPTER 16 Perform In – Sample / Out – of – Sample Tests
CHAPTER 17 Check Performance and Shadow Trade
CHAPTER 18 Gate 2
STAGE 3: Implement
CHAPTER 19 STAGE 3: Overview
CHAPTER 20 Plan and Document Technology Specifications
CHAPTER 21 Design System Architecture
CHAPTER 22 Build and Document the System
CHAPTER 23 Check Performance and Probationary Trade
CHAPTER 24 Gate 3
STAGE 4: Manage Portfolio and Risk
CHAPTER 25 STAGE 4: Overview
CHAPTER 26 Plan Performance and Risk Processes
CHAPTER 27 Define Performance Controls
CAHPTER 28 Perform SPC Analysis
CHAPTER 29 Determine Causes of Variation
CHAPTER 30 Kaizen: Continuous Improvement
Subject Areas: Personal finance [VSB], Financial services industry [KNST], Investment & securities [KFFM]
