EC7103 – C++ Programming for Finance – Coursework 3

In this coursework you have to write a programme to calculate the XX% one-day Value-at-Risk using the historical simulation method. In its simplest form, the method can be described as follows:

• Assume that you have data on prices of a given asset for n trading days, {x1,x2,…,xn}
• Simulate n-1 possible values (scenarios) for the price in day n+1 using the historical rate of change of the price of the asset as

where i=2,…,n.

• These n-1 values can be used as the distribution of the likely prices tomorrow, assuming that each value is equally likely to occur.
• The XX% (e.g. 90%) VaR is calculated taking the (1-XX)% percentile of the distribution of prices calculated earlier, and subtracting its value to the last observation.

Your programme must load the data that you will be given provided, ask the user the confidence level used to calculate the VaR, calculate this value, and show it to the user in an informative way. For a more detailed explanation of the Historical Simulation method, please check the references given at the end of this assessment brief.

HINTS:

• We can input data from an external _le using the fstream library and using

ifstream source(“file_name.txt”);

vector<double> y;

double a;

if (source.is_open()){

while(!source.eof()){

source >> a;

y.push_back(a);

}

source.close();

}

where source is the stream for file.txt.

• The function sort(data.begin(),data.end(),compare) arranges in ascending order the numbers stored in a vector named data.
• The function floor(x) returns the integer part of double x.

Getting Started!

You can use the examples in the lectures and seminars as starting point, and reference to understand the use of the tools needed to solve this coursework. Some of the tools you need to complete this coursework can be found in the following books (and other references listed in the module handbook):

• For a full description of the Historical Simulation VaR you can read chapter 13 of Hull, J., 2012, Options, futures and other derivatives, eighth edition, Pearson
• M.J. Capinski and T. Zastawniak (2012), Numerical Methods in Finance with C++. Cambridge University Press.
• J. Duffy (2004), Financial Instrument Pricing Using C++. Wiley Finance.

 45-49% Minimum requirements have not been met. Scholarship: Inadequate understanding of key issues and concepts; some material may be used inappropriately; uninspired and unoriginal; relies on limited knowledge; analysis poor or obscure, superficial or inconsistent in places; arguments incomplete, partly irrelevant or naive. Independent learning: Restricted to a basic awareness of course material and textbooks; meagre use of material to support assertions. Writing skills: Poor use of English exhibiting errors. Answer may be poorly focussed on the question, lack rigour and/or consist of a series of repetitive, poorly organised points or unsubstantiated assertions that do not relate well to one another or to the question, although some structure discernible. Analysis: Inadequate knowledge of the analysis to be followed, with frequent errors. Some attention paid to underlying principles, but lacking in understanding and frequently irrelevant. Some interpretation is given, but it does not place the analysis in any real context 40-44% Scholarship: Poor knowledge of relevant material; omission of key ideas/material; significant parts may be irrelevant, superficial or factually incorrect; inappropriate use of some material; mere paraphrasing of course texts or lecture notes; key points barely mentioned; very weak grasp or complete misunderstanding of the issues; inclusion of irrelevant material; does not address the topic or question. Independent learning: Restricted to a basic awareness or no awareness of course material and textbooks; very meagre use of supporting material or unsupported assertions; use of irrelevant or unconvincing material. Writing skills: Unacceptable use of English (i.e. comprehension obscured by significant and intrusive errors of spelling, punctuation and grammar); poor and unclear, or totally incoherent, structure. Answers that ‘run out of time’ or miss the point of the question may fall into this (or a lower) class. Analysis: Erroneous analysis with mistakes. Very little attention paid to the underlying principles of the analysis. Far from complete with little relevance to the problem. Limited interpretation that reveals little, if anything, about the meaning 20-39% Scholarship: Displays a superficial appreciation of the demands and broad context of the question but is largely irrelevant, fundamentally flawed, or factually incorrect; inappropriate use of material; mere paraphrasing of course texts or lecture notes; key points barely mentioned; complete misunderstanding of the issues; inclusion of irrelevant material. Independent learning: Restricted to a limited awareness of basic course material; unsupported assertions; use of irrelevant or unconvincing material. Writing skills: Minimal structure, though may only list key themes or ideas with limited comment or explanation. Analysis: Analysis has very significant omissions demonstrating little understanding of problem or underlying principles. Analysis may be ill suited to problem. Very little interpretation of meaning of the analysis. 0-19% Scholarship: No recognition of the demands or scope of the question and no serious attempt to answer it. Complete misunderstanding of the issues; inclusion of irrelevant material. May have simply failed to address the question/topic set. Independent learning: No evidence that the most basic course material has been understood; unsupported assertions; use of irrelevant or unconvincing material. Writing skills: Without structure; comprehension may be completely obscured by poor grammar, spelling, punctuation. Analysis: Virtually complete failure to carry out analysis. No evidence of understanding of underlying principles and bears no relevance to the problem. No attempt to interpret or explain the meaning of the analysis.

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