Financial Engineering

Product Development Practices for Meeting Financial Objectives

by Nisheeth Gupta

Published in 33rd Product Development and Management Association (PDMA) Annual International Conference, Anaheim, CA, October 31-November 4, 2009

This paper reports product development practices that separate the most successful product development programs from... more This paper reports product development practices that separate the most successful product development programs from the rest. A detailed understanding of best product development practices is important because product development is fundamental to corporate success (Clark & Fujimoto, 1991; Eisenhardt & Tabrizi, 1995; Eppinger & Chitkara, 2006). Teams from the Massachusetts Institute of Technology and McKinsey and Company have collaborated to investigate practices used for 112 product development projects at 57 firms in the medical device, industrial, and high-tech industries. Preliminary results suggest that certain practices are particularly important for influencing project outcomes.

Bloomberg interview with Khnifer over Goldman Sachs’ “Tawrruq” Sukuk

by Mohammed Khnifer -(MSc,MBA,CSAA,CIFP) محمد الخنيفر

Financial Times interview ( http://bit.ly/rFMtXC ) Orignal research note on GS Sukuk ( http://bit.ly/ulykYj ) -Goldman Sachs Sukuk Row May Dent Industry Lure

Advisers including Riyadh-based Mohammed Khnifer of Edcomm Group Banker’s Academy in New York has also said it’s... more Advisers including Riyadh-based Mohammed Khnifer of Edcomm Group Banker’s Academy in New York has also said it’s unclear on how Goldman will use the funds it raises.
Edcomm’s Khnifer, a sukuk structurer and strategist, drew parallels between Goldman Sachs’ Islamic bond structure and the reverse Tawarruq contract. He also says Goldman’s program doesn’t ensure the commodity murabaha certificates are only traded at par.
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Bloomberg: ADIB Scholars See Goldman Sukuk Non-Islamic, Al-Eqtisadiah Says ( http://bloom.bg/xzBCeM )

=-=-=-=-=-= Subjective Op-ed from the industry =-=-=-=-=-=

1)GS "sacks of gold" Rocket Scientists Vs. one Saudi Sharia expert (http://bit.ly/tvYSZW )
2)Young Turks’ Reform movement Vs. Old Guards (http://bit.ly/tsTiQS )

3)Reforming the industry: Sheikh Edam M. Ishaq, said the Goldman case might lead to institutional reforms in the industry and closer scrutiny of sukuk issues in general. http://reut.rs/y8ZgEj
4- "This whole issue has really done the market a big favour," said one senior Islamic finance banker following the panel discussion. "It’s got all the questions out in the open very early in the process rather than at the point of issuance, which could have been a disaster." (Source: EuroWeek). http://bit.ly/ACiWlg

5-The research note I once wrote on the financially engineered "flawed" sukuk by Goldman Sachs was chosen by Zawya as a "Major event that shaped the Sukuk Industry in 2011 & expected to leave an impact which will direct the course of 2012" ( http://lnkd.in/hb2WkV )

6- Reuters Breakingviews:Goldman's First Islamic Foray too Clever by Half ( http://bit.ly/yv7R3i )
7-IFN:”The impending issuance has grabbed headlines; not just as it will mark the western banking giant's first foray into the Islamic debt market, but due to questions raised on the Shariah compliance of the facility's structure, including in much-publicized comments by Mr. Khnifer”.
8- Sachs & the triple entendre ! http://read.bi/z2lLJ4
9- مصرفيون إسلاميون تحت فوهة البركان http://tiny.cc/kxxsbw
=-=-=-=-=-= Update =-=-=-=-=-=

The Irish Stock Exchange is reportedly unable to stabilize the tradability at par. Disturbing because the message the industry was receiving from those behind GS deal is the assurance that any tradability would be at par. That means the “third flaw” can not be fixed at all. Further, there will be no control over the OTC transactions which means the sukuk could be traded at market value. Such tradability would make it non-Shariah. (EuroWeek story: http://goo.gl/3E5Hl )

Financial Engineering and Engineering of Financial Regulation

by Yener Coşkun, MRICS

Coşkun, Yener. (2011). Financial Engineering and Engineering of Financial Regulation. Conference Paper. 20-21 October, 2011. Conference on Financial Engineering, Izmir,Turkey.

As observed at least in last two decades, financial engineering has not only changed the way of doing business in... more As observed at least in last two decades, financial engineering has not only changed the way of doing business in finance world, but also has changed daily life of average citizens in the leading economies. Structured products named as weapons of mass destruction in some post-crisis comments. But it is fair to say that few people could understand the nature and risks of these instruments before the crisis. By using literature review and case study analysis, the author analyses how financial regulation and supervision have failed to understand/manage the financial engineering products during/before the global financial crisis. In this context, we discuss the measures to enhance good regulatory governance in engineered products. We conclude however engineered products have important benefits to the global economy, regulatory/supervisory structure should be improved for better firm/system wide risk management. Secondly, there are four components to improve prudential regulatory/supervisory framework of structured products. Those are, timely/effectively action to the balance sheet problems, to increase the effectiveness of the risk management, to improve independence and quality of prudential regulation/supervision and to increase accountability of supervisors.

Keywords: Financial engineering, structured finance, financial crisis, risk management, regulation.

Jel Classification: G32, G01, G24, G38

Interactive Visualization of the Market Graph

by Camilo Rostoker

A class project, not published.

Financial markets are a fruitful area for data exploration,
but the overwhelming size and dimension
of the... more Financial markets are a fruitful area for data exploration,
but the overwhelming size and dimension
of the datasets usually prohibit meaningful
analysis, especially on a large scale. Thus, there
is a need for effective visualization tools to assist in
efficiently exploring the data space. In this paper,
we present a novel visualization tool that empowers
a user with an interactive tool for finding meaningful
relationships in historical or real-time financial
market data. To reduce the size of data to be visualized,
we summarize the areas of interest within the
market graph by displaying only the pre-computed
clusters, and aggregated inter- and intra-cluster
edges. Target graph structures and their associated
attributes are encoded using several visually intuitive
schemes, and a modified force-directed model
is used to layout the graph with minimal visual
clutter while retaining important spatial properties.
We also provide a brief overview of an underlying
parallel data-mining pipeline which enables us to
apply this visualization tool to real-time stock market
data.

Finansta Evrimsel Algoritmik Yaklaşımlar: Genetik Algoritma Uygulamaları

by Koray Çetin

The objective of this study is to review genetic algorithms, which are evolution and natural genetic process based... more The objective of this study is to review genetic algorithms, which are evolution and natural genetic process based stochastic search and optimization techniques, and their financial applications. First, the concepts of evolutionary algorithms and genetic algortihms are explained. Then, literature on the applications of genetic algorithms on finance is reviewed. Financial applications of genetic algoritms are analyzed under two main headings: applications of genetic algorithms in the field of corporate finance and applications on financial market systems and financial economics. Although, there is an enormous literature on financial applications of genetic algorithms, applications on Turkish markets are quite limited. With the review of the financial application of this algoithm it is intented to provide directions for Turkish researchers in this field.
Keywords: Evolutionary Algorithms, Genetic Algorithms, Financial Applications.

Integrated Environments for Virtual Collaboration: an Empirical Modelling Perspective

by Meurig Beynon

(co-authored by Soha Maad) Proceedings of the Fifth World Conference On Integrated Design & Process Technology, Texas 2000.

Collaboration is represented in many different kinds of activity: electronic management of document work-flow for a... more Collaboration is represented in many different kinds of activity: electronic management of document work-flow for a group-work project, sharing information and knowledge across an enterprise, task scheduling in a networked environment, and group activities such as electronic trading and commerce or distance learning. Current trends are directed towards supporting such collaboration via multiple integrated communication channels, such as the internet, telephone, fax and video.

Building a collaborative environment might appear to be simply a technical task involving the set up of appropriate communication protocols between several applications running on different devices. However, for a variety of social and technical reasons, most integrated collaborative environments are failing to give adequate support to real collaboration. For instance, the challenges to be faced in building an integrated environment for collaboration include: resolving conflicts of interest in a group activity, maintaining a synchronized flow of collaborative tasks, and respecting the agency and dependency that operates in communication between human agents. It is also of particular practical importance both to ensure that the cost of deploying a distributed solution is in proportion to its benefits, and to integrate the media for front-end data capturing and communication with those for back-end persistent storage of information.

In order to construct more effective integrated environments for collaboration, new principles for systems representation and analysis that can cope with the complexity of distributed human computer interactions and their consequences are of critical importance.

Distributed Empirical Modelling offers a new paradigm that can be applied to human collaboration. It can potentially simulate interaction in the real world, where many people collaborate to accomplish a group work project, share knowledge to enhance their educational skills, or compete to maintain a favourable position in a challenging trading environment.

Empirical Modelling of Real Life Financial Systems: The need for Integration of Enabling Tools and Technologies

by Meurig Beynon

(co-authored by Soha Maad) Journal of Integrated Design and Process Science, Volume 6, Issue 1, January 2002, p43-58.

Understanding, analyzing, and constructing experimental models of real life financial systems is a wide-ranging task... more Understanding, analyzing, and constructing experimental models of real life financial systems is a wide-ranging task that requires an integration of different technologies and enabling tools and calls for a bridging of the gap between theory and application as well as research and development in this area. Business process modelling, intelligent state and agent-oriented modelling, data warehousing and data quality assessment tools, financial analysis tools, and client server technologies should tie up coherently to enhance knowledge acquisition in a global financial market. Players in the global financial marketplace, such as investors, rating agencies, financial service providers, analysts and consultants, are faced with a massive mount of explicit and implicit market information characterized by a high level of dependency and interrelationship. An automated environment which, as far as possible, depicts and captures all aspects of the real-life financial system, is needed to adapt to state changes in global financial markets. Such an environment should provide a flexible human computer interface backed with a high level of interaction, visualization and reporting capability, with minimal overhead coding requirements.

A lightweight stream-processing library using MPI

by Camilo Rostoker

We describe the design of a lightweight library using MPI to support stream-processing on acyclic process structures.... more We describe the design of a lightweight library using MPI to support stream-processing on acyclic process structures. The design can be used to connect together arbitrary modules where each module can be its own parallel MPI program. We make extensive use of MPI groups and communicators to increase the flexibility of the library, and to make the library easier and safer to use. The notion of a communication context in MPI ensures that libraries do not conflict where a message from one library is mistakenly received by another. The library is not required to be part of any larger workflow environment and is compatible with existing MPI execution environments. The library is part of MarketMiner, a system for executing financial workflows.

A parallel workflow for real-time correlation and clustering of high-frequency stock market data

by Camilo Rostoker

We investigate the design and implementation of a parallel workflow environment targeted towards the financial... more We investigate the design and implementation of a parallel workflow environment targeted towards the financial industry. The system performs real-time correlation analysis and clustering to identify trends within streaming high-frequency intra-day trading data. Our system utilizes state-of-the-art methods to optimize the delivery of computationally-expensive real-time stock market data analysis, with direct applications in automated/algorithmic trading as well as knowledge discovery in high-throughput electronic exchanges. This paper describes the design of the system including the key online parallel algorithms for robust correlation calculation and clique-based clustering using stochastic local search. We evaluate the performance and scalability of the system, followed by a preliminary analysis of the results using data from the Toronto Stock Exchange

A high performance pair trading application

by Camilo Rostoker

This paper describes a high-frequency pair trading strategy that exploits the power of MarketMiner, a high-performance... more This paper describes a high-frequency pair trading strategy that exploits the power of MarketMiner, a high-performance analytics platform that enables a real-time, market-wide search for short-term correlation breakdowns across multiple markets and asset classes. The main theme of this paper is to discuss the computational requirements of model formulation and back-testing, and how a scalable solution built using a modular, MPI-based infrastructure can assist quantitative model and strategy developers by increasing the scale of their experiments or decreasing the time it takes to thoroughly test different parameters. We describe our work to date which is the design of a canonical pair trading algorithm, illustrating how fast and efficient backtesting can be performed using MarketMiner. Preliminary results are given based on a small set of stocks, parameter sets and correlation measures.

Sukuk- Building for a Solid Future.pdf

by Mohammed Khnifer -(MSc,MBA,CSAA,CIFP) محمد الخنيفر

Mr. Khnifer was recently featured on the front page of the Financial Times & presented as ‘Shara Adviser’ ( http://bit.ly/rFMtXC ). He is mostly remembered in the industry as the man who ignited the “Great Debate” over Goldman Sachs’ Tawarruq Sukuk.

Final verdict: East Cameron sukuk holders win their case


Asset-based and asset-backed sukuk are... more Final verdict: East Cameron sukuk holders win their case


Asset-based and asset-backed sukuk are contrasting
instruments with different consequences in the event of default, as Mohammed Khnifer explains in his analysis of distressed high-profile sukuk and the judgement on East Cameron Gas.
Also under the microscope is bankruptcy remoteness in sukuk issuance.

Certificate holders can take default worries off their shoulders with proper asset-backed Sukuk

by Mohammed Khnifer -(MSc,MBA,CSAA,CIFP) محمد الخنيفر

Business Islamicia Magazine

The research explains how lawyers can structure Sukuk that can save certificate-holders from the repercussions of... more The research explains how lawyers can structure Sukuk that can save certificate-holders from the repercussions of what
comes after default.
Asset protection of certificate-holders vis-a-vis their creditors can be achieved by adopting bankruptcy remoteness.

Jerarquía de preferencias y estrategia empresarial en la determinación de la estructura de capital de la pyme: un enfoque con datos de panel

by Luisa Siabato

Time series prediction using supervised learning and tools from chaos theory

by Andrew Edmonds

Nov. 1996 Ph.D. thesis at the University of Bedfordshire (Previously Luton)

In this work methods for performing time series prediction on complex real
world time series are examined. In... more In this work methods for performing time series prediction on complex real
world time series are examined. In particular series exhibiting non-linear or
chaotic behaviour are selected for analysis. A range of methodologies based
on Takens’ embedding theorem are considered and compared with more
conventional methods. A novel combination of methods for determining the
optimal embedding parameters are employed and tried out with multivariate
financial time series data and with a complex series derived from an
experiment in biotechnology. The results show that this combination of
techniques provide accurate results while improving dramatically the time
required to produce predictions and analyses, and eliminating a range of
parameters that had hitherto been fixed empirically. The architecture and
methodology of the prediction software developed is described along with
design decisions and their justification. Sensitivity analyses are employed to
justify the use of this combination of methods, and comparisons are made
with more conventional predictive techniques and trivial predictors showing
the superiority of the results generated by the work detailed in this thesis.

Particle Filters In Decision Making Problems Under Uncertainty

by jurica cerovec