Quantitative finance : an object-oriented approach in C

In the forty years since the seminal article by Black and Scholes (1973), quantitative methods have become indispensable in the assessment, pricing and hedging of financial risk. This is most evident in the techniques used to price derivative financial instruments, but permeates all areas of finance. In fact, the option pricing paradigm itself is being increasingly applied in situations that go beyond the traditional calls and puts. In addition to more complex derivatives and structured financial products, which incorporate several sources of risk, option pricing techniques are employed in situations ranging from credit risk assessment to the valuation of real (e.g. plant) investment alternatives. As quantitative finance has become more sophisticated, it has also become more computationally intensive. For most of the techniques to be practically useful, efficient computer implementation is required. The models, especially those incorporating several sources of risk, have also become more complex. Nevertheless, they often exhibit a surprising amount of modularity and commonality in the underlying method and approach. Ideally, one would want to capitalise on this when implementing the models. C++ is the de facto industry standard in quantitative finance, probably for both of these reasons. Especially for models implemented "in-house" at major financial institutions, computationally intensive algorithms are typically coded in C++ and linked into a spreadsheet package serving as a front-end.