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Python for Finance PDF

566 Pages·2014·13.59 MB·English
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www.it-ebooks.info Python for Finance Yves Hilpisch Beijing • Cambridge • Farnham • Köln • Sebastopol • Tokyo www.it-ebooks.info Preface Not too long ago, Python as a programming language and platform technology was considered exotic — if not completely irrelevant — in the financial industry. By contrast, in 2014 there are many examples of large financial institutions — like Bank of America Merrill Lynch with its Quartz project, or JP Morgan Chase with the Athena project — that strategically use Python alongside other established technologies to build, enhance, and maintain some of their core IT systems. There is also a multitude of larger and smaller hedge funds that make heavy use of Python’s capabilities when it comes to efficient financial application development and productive financial analytics efforts. Similarly, many of today’s Master of Financial Engineering programs (or programs awarding similar degrees) use Python as one of the core languages for teaching the translation of quantitative finance theory into executable computer code. Educational programs and trainings targeted to finance professionals are also increasingly incorporating Python into their curricula. Some now teach it as the main implementation language. There are many reasons why Python has had such recent success and why it seems it will continue to do so in the future. Among these reasons are its syntax, the ecosystem of scientific and data analytics libraries available to developers using Python, its ease of integration with almost any other technology, and its status as open source. (See Chapter 1 for a few more insights in this regard.) For that reason, there is an abundance of good books available that teach Python from different angles and with different focuses. This book is one of the first to introduce and teach Python for finance — in particular, for quantitative finance and for financial analytics. The approach is a practical one, in that implementation and illustration come before theoretical details, and the big picture is generally more focused on than the most arcane parameterization options of a certain class or function. Most of this book has been written in the powerful, interactive, browser-based IPython Notebook environment (explained in more detail in Chapter 2). This makes it possible to provide the reader with executable, interactive versions of almost all examples used in this book. Those who want to immediately get started with a full-fledged, interactive financial analytics environment for Python (and, for instance, R and Julia) should go to http://oreilly.quant-platform.com and try out the Python Quant Platform (in combination with the IPython Notebook files and code that come with this book). You should also have a look at DX analytics, a Python-based financial analytics library. My other book, Derivatives Analytics with Python (Wiley Finance), presents more details on the theory and numerical methods for advanced derivatives analytics. It also provides a wealth of readily usable Python code. Further material, and, in particular, slide decks and videos of talks about Python for Quant Finance can be found on my private website. If you want to get involved in Python for Quant Finance community events, there are opportunities in the financial centers of the world. For example, I myself (co)organize meetup groups with this focus in London (cf. http://www.meetup.com/Python-for-Quant- www.it-ebooks.info Finance-London/) and New York City (cf. http://www.meetup.com/Python-for-Quant- Finance-NYC/). There are also For Python Quants conferences and workshops several times a year (cf. http://forpythonquants.com and http://pythonquants.com). I am really excited that Python has established itself as an important technology in the financial industry. I am also sure that it will play an even more important role there in the future, in fields like derivatives and risk analytics or high performance computing. My hope is that this book will help professionals, researchers, and students alike make the most of Python when facing the challenges of this fascinating field. www.it-ebooks.info Conventions Used in This Book The following typographical conventions are used in this book: Italic Indicates new terms, URLs, and email addresses. Constant width Used for program listings, as well as within paragraphs to refer to software packages, programming languages, file extensions, filenames, program elements such as variable or function names, databases, data types, environment variables, statements, and keywords. Constant width italic Shows text that should be replaced with user-supplied values or by values determined by context. TIP This element signifies a tip or suggestion. WARNING This element indicates a warning or caution. www.it-ebooks.info Using Code Examples Supplemental material (in particular, IPython Notebooks and Python scripts/modules) is available for download at http://oreilly.quant-platform.com. This book is here to help you get your job done. In general, if example code is offered with this book, you may use it in your programs and documentation. You do not need to contact us for permission unless you’re reproducing a significant portion of the code. For example, writing a program that uses several chunks of code from this book does not require permission. Selling or distributing a CD-ROM of examples from O’Reilly books does require permission. Answering a question by citing this book and quoting example code does not require permission. Incorporating a significant amount of example code from this book into your product’s documentation does require permission. We appreciate, but do not require, attribution. An attribution usually includes the title, author, publisher, and ISBN. For example: “Python for Finance by Yves Hilpisch (O’Reilly). Copyright 2015 Yves Hilpisch, 978-1-491-94528-5.” If you feel your use of code examples falls outside fair use or the permission given above, feel free to contact us at [email protected] www.it-ebooks.info Safari® Books Online NOTE Safari Books Online is an on-demand digital library that delivers expert content in both book and video form from the world’s leading authors in technology and business. Technology professionals, software developers, web designers, and business and creative professionals use Safari Books Online as their primary resource for research, problem solving, learning, and certification training. Safari Books Online offers a range of plans and pricing for enterprise, government, education, and individuals. Members have access to thousands of books, training videos, and prepublication manuscripts in one fully searchable database from publishers like O’Reilly Media, Prentice Hall Professional, Addison-Wesley Professional, Microsoft Press, Sams, Que, Peachpit Press, Focal Press, Cisco Press, John Wiley & Sons, Syngress, Morgan Kaufmann, IBM Redbooks, Packt, Adobe Press, FT Press, Apress, Manning, New Riders, McGraw-Hill, Jones & Bartlett, Course Technology, and hundreds more. For more information about Safari Books Online, please visit us online. www.it-ebooks.info How to Contact Us Please address comments and questions concerning this book to the publisher: O’Reilly Media, Inc. 1005 Gravenstein Highway North Sebastopol, CA 95472 800-998-9938 (in the United States or Canada) 707-829-0515 (international or local) 707-829-0104 (fax) We have a web page for this book, where we list errata, examples, and any additional information. You can access this page at http://bit.ly/python-finance. To comment or ask technical questions about this book, send email to [email protected] For more information about our books, courses, conferences, and news, see our website at http://www.oreilly.com. Find us on Facebook: http://facebook.com/oreilly Follow us on Twitter: http://twitter.com/oreillymedia Watch us on YouTube: http://www.youtube.com/oreillymedia www.it-ebooks.info Acknowledgments I want to thank all those who helped to make this book a reality, in particular those who have provided honest feedback or even completely worked out examples, like Ben Lerner, James Powell, Michael Schwed, Thomas Wiecki or Felix Zumstein. Similarly, I would like to thank reviewers Hugh Brown, Jennifer Pierce, Kevin Sheppard, and Galen Wilkerson. The book benefited from their valuable feedback and the many suggestions. The book has also benefited significantly as a result of feedback I received from the participants of the many conferences and workshops I was able to present at in 2013 and 2014: PyData, For Python Quants, Big Data in Quant Finance, EuroPython, EuroScipy, PyCon DE, PyCon Ireland, Parallel Data Analysis, Budapest BI Forum and CodeJam. I also got valuable feedback during my many presentations at Python meetups in Berlin, London, and New York City. Last but not least, I want to thank my family, which fully accepts that I do what I love doing most and this, in general, rather intensively. Writing and finishing a book of this length over the course of a year requires a large time commitment — on top of my usually heavy workload and packed travel schedule — and makes it necessary to sit sometimes more hours in solitude in front the computer than expected. Therefore, thank you Sandra, Lilli, and Henry for your understanding and support. I dedicate this book to my lovely wife Sandra, who is the heart of our family. Yves Saarland, November 2014 www.it-ebooks.info Part I. Python and Finance This part introduces Python for finance. It consists of three chapters: Chapter 1 briefly discusses Python in general and argues why Python is indeed well suited to address the technological challenges in the finance industry and in financial (data) analytics. Chapter 2, on Python infrastructure and tools, is meant to provide a concise overview of the most important things you have to know to get started with interactive analytics and application development in Python; the related Appendix A surveys some selected best practices for Python development. Chapter 3 immediately dives into three specific financial examples; it illustrates how to calculate implied volatilities of options with Python, how to simulate a financial model with Python and the array library NumPy, and how to implement a backtesting for a trend-based investment strategy. This chapter should give the reader a feeling for what it means to use Python for financial analytics — details are not that important at this stage; they are all explained in Part II. www.it-ebooks.info

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