Principles of Quantitative Development

4.4 ASSET-CLASS VIEW

Trading desks are primarily organized under asset classes. We have trading desks dealing with fixed income (FI – bonds trading), equities (EQ – stocks), foreign exchange (FX or forex – currencies), commodities (COM – precious and base metals, energy, etc.), interest rate derivatives (IRD – swaps) and so on. Because of this organization, traders use an asset-class-based paradigm to view trades and trading systems.

The hierarchy of trading desks, however, is much more complicated than simple asset class categorization. We have derivatives trading desks, structured products, exotics, day trading, etc. These desks may be organized by asset classes or by the nature of their activity. Thus, a commodities structured products trader may have a reporting line that does not go through the rest of the commodities or energy trading. However, looking at their skillset and knowledge requirements, it is best to view trading desks under their asset class banner.

The trading platform interacts with the trading desks at the input (booking) as well as the output (reporting) levels. Although many of the input and output requests are asset-class-specific, some of them cut across all asset classes. The generic requests are, for example, sensitivity and scenario analysis reports. An example of a scenario analysis is given in Table 4.1 and Figure 4.3. (This analysis is performed using the pricing program that comes with this book.) In a deployed environment, such reports would be ...