Python for Finance

408 Pages·2014·4.546 MB·English

by  Yuxing Yan

Python for Finance
Build real-life Python applications for quantitative
finance and financial engineering
Yuxing Yan
BIRMINGHAM - MUMBAI
Python for Finance
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First published: April 2014
Production Reference: 1180414
Published by Packt Publishing Ltd.
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ISBN 978-1-78328-437-5
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Cover Image by Aniket Sawant ([email protected])
Credits
Author Project Coordinator
Yuxing Yan Swati Kumari
Reviewers Proofreaders
Mourad MOURAFIQ Simran Bhogal
Loucas Papayiannis Maria Gould
Jiri Pik Ameesha Green
Paul Hindle
Commissioning Editor
Joanna McMahon
Usha Iyer
Indexers
Acquisition Editors
Mehreen Deshkmukh
Pramila Balan
Monica Ajmera Mehta
Llewellyn Rozario
Rekha Nair
Content Development Editor Tejal Soni
Ruchita Bhansali Priya Subramani
Technical Editors Graphics
Shubhangi Dhamgaye Abhinash Sahu
Krishnaveni Haridas
Production Coordinator
Arwa Manasawala
Aditi Gajjar Patel
Ankita Thakur
Cover Work
Copy Editors
Aditi Gajjar Patel
Roshni Banerjee
Sarang Chari
Adithi Shetty
About the Author
Yuxing Yan graduated from McGill university with a PhD in finance. He has
taught various finance courses, such as Financial Modeling, Options and Futures,
Portfolio Theory, Quantitative Financial Analysis, Corporate Finance, and
Introduction to Financial Databases to undergraduate and graduate students at
seven universities: two in Canada, one in Singapore, and four in the USA.
Dr. Yan has actively done research with several publications in Journal of
Accounting and Finance, Journal of Banking and Finance, Journal of Empirical
Finance, Real Estate Review, Pacific Basin Finance Journal, Applied Financial
Economics, and Annals of Operations Research. For example, his latest publication,
co-authored with Shaojun Zhang, will appear in the Journal of Banking and Finance
in 2014. His research areas include investment, market microstructure, and open
source finance.
He is proficient at several computer languages such as SAS, R, MATLAB, C, and
Python. From 2003 to 2010, he worked as a technical director at Wharton Research
Data Services (WRDS), where he debugged several hundred computer programs
related to research for WRDS users. After that, he returned to teaching in 2010 and
introduced R into several quantitative courses at two universities. Based on lecture
notes, he has the first draft of an unpublished manuscript titled Financial Modeling
using R.
In addition, he is an expert on financial data. While teaching at NTU in Singapore, he
offered a course called Introduction to Financial Databases to doctoral students. While
working at WRDS, he answered numerous questions related to financial databases
and helped update CRSP, Compustat, IBES, and TAQ (NYSE high-frequency
database). In 2007, Dr. Yan and S.W. Zhu (his co-author) published a book titled
Financial Databases, Shiwu Zhu and Yuxing Yan, Tsinghua University Press. Currently,
he spends considerable time and effort on public financial data. If you have any
queries, you can always contact him at [email protected].
Acknowledgments
I would like to thank Ben Amoako-Adu, Brian Smith (who taught me the first two
finance courses and offered unstinting support for many years after my graduation),
George Athanassakos (one of his assignments "forced" me to learn C), Jin-Chun Duan,
Wei-Hung Mao, Jerome Detemple, Bill Sealey, Chris Jacobs, Mo Chaudhury (my
former professors at McGill), and Laurence Kryzanowski. (His wonderful teaching
inspired me to concentrate on empirical finance and he edited my doctoral thesis
word by word even though he was not my supervisor!)
There is no doubt that my experience at Wharton has shaped my thinking and
enhanced my skill sets. I thank Chris Schull and Michael Boldin for offering me
the job; Mark Keintz, Dong Xu, Steven Crispi, and Dave Robinson, my former
colleagues, who helped me greatly during my first two years at Wharton; and
Eric Zhu, Paul Ratnaraj, Premal Vora, Shuguang Zhang, Michelle Duan, Nicholle
Mcniece, Russ Ney, Robin Nussbaum-Gold, and Mireia Gine for all their help.
In addition, I'd like to thank Shaobo Ji, Tong Yu, Shaoming Huang, Xing Zhang,
Changwen Miao, Karyl Leggio, Lisa Fairchild, K. G. Viswanathan, Na Wang, Mark
Lennon, and Qiyu (Jason) Zhang for helping me in many ways. I also want to thank
Shaojun Zhang and Qian Sun, my former colleagues and co-authors on several
papers, for their valuable input and discussions.
Creating a good book involves many talented publishing professionals and external
reviewers in addition to the author(s). I would like to acknowledge the excellent
efforts and input from the staff of my publisher, Packt Publishing, especially
Llewellyn F. Rozario, Swati Kumari, Arwa Manasawala, Ruchita Bhansali, Apeksha
Chitnis, and Pramila Balan as well as the external reviewers, Martin Olveyra,
Mourad MOURAFIQ, and Loucas Parayiannis, for their valuable advice, suggestions,
and criticism.
Finally, and most importantly, I thank my wife, Xiaoning Jin, for her strong support,
my daughter, Jing Yan, and son, James Yan, for their understanding and love they
have showered on me over the years.
About the Reviewers
Jiri Pik is a finance and business intelligence consultant working with major
investment banks, hedge funds, and other financial players. He has architected
and delivered breakthrough trading, portfolio and risk management systems, and
decision-support systems across industries.
His consulting firm, WIXESYS, provides their clients with certified expertise,
judgment, and execution at the speed of light. WIXESYS' power tools include
revolutionary Excel and Outlook add-ons available at http://spearian.com.
Loucas Papayiannis was born and raised in Cyprus, where he graduated from
the English School in Nicosia. After completing his mandatory military service at the
Cyprus National Guard, Loucas left for the University of California, Berkeley, where
he obtained a BSc in Electrical Engineering and Computer Science. While at Berkeley,
he had the opportunity to work for the Bosch Research Center in Palo Alto, where he
developed a strong interest in computer-human interface.
In an unexpected turn of events, an opportunity to work for Bloomberg LP in
London came up, after he completed his studies. Despite the fact that financial
software was a sharp change of direction from where Loucas was heading at the
time, he moved to London and seized the opportunity. He quickly grew to enjoy this
new field and consequently enrolled in an MSc program in Financial Mathematics at
King's College, London while still working full time, completing this degree in 2011.
In 2010, he started at Goldman Sachs, and in August 2012, he joined Barclays
Capital, where he is currently employed. His work is focused on developing an
FX Options application, and he mainly works with C++. However, he has worked
with a variety of languages and technologies through the years. He is a Linux
and Python enthusiast and spends his free time experimenting and developing
applications with them.
Mourad MOURAFIQ is a software engineer and data scientist. After successfully
completing his studies in Applied Mathematics, he worked at an investment bank as
a quantitative modeler in the structured products market, specializing in ABS, CDO,
and CDS. Then, he worked as a quantitative analyst for the largest French bank.
After a couple of years in the financial world, he discovered a passion for machine
learning and computational mathematics and decided to join a start-up that
specializes in software mining and artificial intelligence.
I would like to thank my mentors who took me under their wings
during my initial days on the trading floor.
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Table of Contents
Preface 1
Chapter 1: Introduction and Installation of Python 9
Introduction to Python 10
Installing Python 12
Different versions of Python 12
Ways to launch Python 13
Launching Python with GUI 13
Launching Python from the Python command line 14
Launching Python from our own DOS window 15
Quitting Python 16
Error messages 16
Python language is case sensitive 17
Initializing the variable 17
Finding the help window 18
Finding manuals and tutorials 19
Finding the version of Python 21
Summary 21
Exercises 22
Chapter 2: Using Python as an Ordinary Calculator 23
Assigning values to variables 24
Displaying the value of a variable 24
Error messages 24
Can't call a variable without assignment 25
Choosing meaningful names 25
Using dir() to find variables and functions 26
Deleting or unsigning a variable 27