University of Birmingham School of Computer Science Commercial Programming Investment Banking Technology Chris Brook Technical Lead, Credit IT - UBS Investment Bank October 13, 2011 PUBLIC
Table of Contents SECTION 1 SECTION 2 SECTION 3 SECTION 4 SECTION 5 Finance 101 - Key Concepts in Credit Trading Grid Computing Real-time Business Intelligence Managing Development Joining UBS www. ubs. com/graduates
About Me Chris Brook Technical Lead, Structured Credit IT - UBS Investment Bank · Joined UBS June 2011 · Masters graduate in Aerospace Engineering · 6 years experience, specialising in distributed systems and database engineering www. ubs. com/graduates
UBS — Our Services Investment Bank Wealth Management & Swiss Bank Wealth Management Americas Global Asset Management The Investment Bank provides securities and other financial products and research in equities, fixed income, rates, foreign exchange and precious metals. Wealth Management & Swiss Bank focuses on delivering comprehensive financial services to high net worth and ultra high net worth individuals around the world – except those served by Wealth Management Americas – as well as private and corporate clients in Switzerland. Wealth Management Americas provides advice-based relationships through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra high net worth, net worth and core affluent individuals and families. Global Asset Management is a large-scale asset manager with businesses diversified across regions, capabilities and distribution channels. Our Wealth Management business unit provides clients in over 40 countries, including Switzerland, with financial advice, products and tools to fit their individual needs. Our retail & Corporate business unit has a leading position cross its client segments in Switzerland. It includes the Wealth Management US Business, as well as the domestic Canadian business and the international business booked in the United State It also provides advisory services and access to the world's capital markets for corporate and institutional clients, governments, financial intermediaries and alternative asset managers and private investors. It offers investment capabilities and investment styles across all major traditional and alternative asset classes. These include equities, fixed income, currency, hedge fund, real estate and infrastructure investment capabilities that can also be combined in multi-asset strategies. The fund services unit provides legal fund set-up and accounting and reporting for all retail and institutional funds. www. ubs. com/graduates
UBS Investment Bank Three main functions Investment Banking Department – advising companies on their structure, funding, flotation, mergers & acquisitions Equities – distributing, trading, financing and clearing shares and sharelinked products Fixed Income, Currencies & Commodities trading in Foreign Exchange, Interest Rates, Emerging Markets and Credit www. ubs. com/graduates
SECTION 1 Finance 101 - Key Concepts in Credit Trading www. ubs. com/graduates
101: How do Businesses Finance Themselves? Issuing Equity (Shares) A share of the ownership of the company. Price of each share = (Future Earnings + Assets - Liabilities) / Number of Shares A bond is a debt security that entitles the holder to repayment of the principal sum plus interest. Issuing Debt Bonds have a face value (on which the issuer pays interest) a coupon (interest rate (Bonds) paid by issuer) and maturity (date that the principal is due to be re-paid) Bonds pay interest – they have a cash flow Taking a Loans pay interest – they have a cash flow www. ubs. com/graduates
101: What is the Value of Money? Today, the value of £ 100 is £ 100 - But in one year it may be more or less. It could go up (earn interest). It could go down (be affected by inflation). The Time Value of Money I could loan it to someone for one year, at 5% interest… (£ 105 to repay) But: • I’d really like the £ 100 back now… • And, I may not be paid back! - there is a risk attached to this loan ‘Future value’ = How much my £ 100 could be worth in one year (e. g. £ 105) Discounted ‘Present value’ = Value today of a £ 105 debt, re-paid next year (e. g. £ 100) Cash Flow DCF techniques are used to adjust for the ‘time value’ of money www. ubs. com/graduates
101: Derivatives, Desks and Books A derivative is fundamentally a contract between two or more parties – a trade. Derivatives Its value is derived from the value and characteristics of another security - the underlying ‘asset’. E. g. an Option - a contract giving the holder the right to buy or sell a quantity of something (the ‘asset’) at a set price, within a certain time period. The buyer pays a fee. Trading Desks Trading Book Occupied by licensed traders, usually specialising in trading one particular type of investment product / instrument. (e. g. foreign exchange traders, commodities traders, equities traders) A portfolio of financial instruments held by a brokerage or bank. Each book can contain 1000’s of trades. www. ubs. com/graduates
101: The Risks of Trading Credit Risk – the risk of loss due to non payment Credit Risk is the risk of loss arising from a client who does not make payments as promised. Such an event is called a default. Particularly in transactions lasting several years (e. g. a loan or mortgage) the lender may need to make financial provisions against the risk of default. Understanding Credit Risk is an essential component of managing the bank’s balance sheet. Market Risk – the risk of loss due to fluctuations in the market The potential for the bank to experience losses due to fluctuations in prices of securities (e. g. the underlying assets). Every day your portfolio value will change depending on the market price of each trade within it. www. ubs. com/graduates
101: Securitised Products: What is a CDO? Collateralised Debt Obligation Assets Losses Liabilities AAA-rated Bonds 5 th Loss A-rated Bonds Diversified Portfolio of Credits generate Cash flows Last Loss 4 th Loss BBB-rated Bonds 3 rd Loss BB-rated Bonds 2 nd Loss ‘Equity’ Bonds 1 st Loss Credit exposure www. ubs. com/graduates
From Sub Prime to Credit Crunch · Mortgages and loans produce a cash flow · Subprime: making loans to people who may have difficulty repaying · The Subprime mortgage crisis arose from 'bundling' American subprime and American regular mortgages into Asset-backed securities (ABS/MBS) and selling these bundles onward 1. Real Estate prices peaked in the US in 2006, and then started to fall 2. Leading to a rise in subprime mortgage defaults during 2007 3. Leading to an increase in losses reported within ABS/MBS 4. During 2008 finance institutions wrote off $750 billion in associated losses 5. …. which led to Banks experiencing reduced access to funds (and no money to lend) www. ubs. com/graduates
CDX Credit Default Swap Index 2007 to Feb 2011 HBOS Lehmans Merrill RBS AIG WAMU Citigroup Iceland in trouble AIG loss Bear Stearns Northern Rock Subprime Crisis US eases money Greece in Trouble US Stimulus Package GM & Chrysler bankrupt Spain on watch Ireland in trouble www. ubs. com/graduates
101: Managing Risk Management · Market Risk (Va. R, Stress) – probable loss on portfolio given changes in the market · Credit Risk (PFE, CVA) – probable loss on portfolio given default of counterparty · Profit and Loss explain (P&L) – daily change to the value of our trading positions · Sensitivities – of prices due to potential changes in underlying parameters on which their value is dependent · Collateral – how can we ‘net’ this / optimise our use of collateral? Front Office (The Traders) · Position keeping, sensitivities · FX book management · Real time P&L – present value of our trading positions · Continuous hedging – protect trading positions against potential shifts in the market www. ubs. com/graduates
101: CDO Pricing is a little bit complicated… If then goto Lorem ipsum, lorem ipsum dolor sit amet , Lorem, dummy text, loren ipsum Lorem ipsum, lorem ipsum dolor sit amet , Lorem, dummy text, loren ipsum Lorem ipsum, lorem ipsum dolor sit amet , Lorem, dummy text, loren ipsum Lorem ipsum, lorem ipsum dolor sit amet, Lorem, dummy text, loren ipsum www. ubs. com/graduates
101: Monte Carlo Simulations Monte Carlo Simulation Value Distribution of final values Time · Monte Carlo is a powerful simulation method for estimating the future performance of a portfolio. · Relies on repeated random sampling to compute results. · Simulate sources of uncertainty affecting value, and then determine average value over the range of resultant outcomes. For illustrative purposes only. Monte Carlo simulation allows us to evaluate a wide range of market conditions and investment scenarios. www. ubs. com/graduates
101: Monte Carlo Simulations – Computing challenges Monte Carlo simulations are useful because… · They are generic – you can model any cash flow · They provide a Probability Distribution However, they are computationally expensive… · You can try and optimise your model · You can pre-generate random numbers as input · You can optimise your software to enable it to run faster · And, you can run them on the Grid www. ubs. com/graduates
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SECTION 2 Grid Computing www. ubs. com/graduates
Sequential Computing · Excel typically calculates cells sequentially, based on dependencies. · Multi-threaded Excel can calculate in parallel, but is limited by CPU cores. · The 50 cells in this example take 10 seconds each to calculate. · 50 x 10 = 500 sec CPU time · A dual-core machine would take over 4 minutes to calculate this simple example …Can we continue buying faster workstations? www. ubs. com/graduates
Parallel Computing on the Grid Distributed, parallel computation – break long running calculations into many pieces and run in parallel across many computers · Excel Add-in communicates with the Grid. · Grid Software divides calculation into 50 separate units of work. 5 second overhead in setting this up. · The work units are allocated to engines and computed simultaneously. · As engines complete, they notify the Grid Controller of the result. · Controller aggregates results and returns to Excel. Further 5 second overhead. · 4 min calculation reduced to ~20 sec. www. ubs. com/graduates
UBS Investment Bank IT: Key Facts & Figures > 24, 000 Grid Engines (dedicated cores) > 6, 000 servers – grows 5% per year > 2. 4 Petabytes of storage – grows 12% per year > 31, 000 system changes in 2009 - grows 10% per year >1. 7 MW power consumption = 1700 Kettles! October 2010 www. ubs. com/graduates
Current & future challenges for the Grid – feeding it! Networks are not increasing in performance at the same rate as CPUs Huge volumes of input and output data Ensuring coherent data Sequential or parallel calculations? Sudden need for extra capacity – e. g. the ‘Flash Crash’ of May 2010? CPU Scavenging? (use spare desktop capacity) www. ubs. com/graduates
Essay Question Optimising workload to run on a grid is non-trivial… Example: Daily Trade Valuation · 108, 000 trades need to be valued in London each day · There are 20 different trade types: some are fast to price, some are slow – 99% of trades fall into just 3 types (the simple or ‘vanilla’ trades) – However, the remaining 1% of trades account for 30% of the net calculation time! · Calculation time for a single trade is due to two things: – The amount of network I/O required to move the input data to the calc node – The amount of CPU time taken to calculate the result · We can bundle trades together, where they share common input data – This reduces network I/O time and contention, but will increase CPU time / decrease parallelism · The trade population changes daily, and new trade types can be created. Question · Present some techniques which could be used to optimise the grouping of trades into work units, to reduce the overall end-to-end processing time. · Options could include using a feedback loop, based on instrumentation of the previous run. · What about machine learning? www. ubs. com/graduates
SECTION 3 Real-time Business Intelligence www. ubs. com/graduates
The challenge of Timeliness AND Complexity · Decision making happens under pressure · Data is changing dynamically · Large amounts of data have to be analysed / correlated · You need to visualise data in a way that supports decision making · This all needs to happen quickly www. ubs. com/graduates
Introducing OLAP (online analytical processing) · OLAP gives the capability to query and analyse data using dimensions. · OLAP Cubes extend the two-dimensional array of a spreadsheet into n-dimensions. · A cube’s metadata structure is created from a star schema or snowflake schema, by joining several tables in a relational database. · OLAP tools are sold by database and analytic software vendors, and are widely used in business to analyse historical data, e. g. for root cause analysis. · Data is imported into the cube, and processed into complex proprietary data structures, optimised for querying of results. Data compression, bitmap indexes, and pre-aggregation are used to achieve fast query performance. OLAP performance depends on pre-processing of the data. It can be too slow to collect and analyse the input data to enable the business to make decisions on ‘live’ information (e. g. market prices) www. ubs. com/graduates
Complex Event Processing (CEP) Decision-making based on analysing streams of information in real-time. · Uses a ‘SQL-like’ language to query an Event Stream. · An Event Stream could be live market prices / exchange trades. · Detect patterns among multiple streams of event data. · Execute calculations on multiple streams of event data – e. g. calculate averages. · Information complexity is low but decision timeliness is fast. The combination of CEP and OLAP provides a Real-Time Business Intelligence platform that enables us to analyse the latest information and react immediately. www. ubs. com/graduates
Performance Metrics Our Cube has · 1 trillion data points · 20 dimensions, 39 levels · 5 -days history held in memory · 5 -days – 250 GB loaded into cube (50 GB x 5 days) · 1 -year history available on disk · 1 year – 13 TB data is compressed into 1. 5 TB and loaded into cubes · A new day’s data must be accessible within 10 minutes This translates into · Processing concurrent Updates: 200, 000 updates/sec – one every 5 ms · Processing concurrent Queries: 266 queries/sec www. ubs. com/graduates
SECTION 4 Managing Development www. ubs. com/graduates
UBS IT: Our Geographic Footprint UBS has 65, 000 staff: 17, 000 in IT (and 5, 500 in the Investment Bank) UK 2829 Americas 3660 Russia EMEA 801 Switzerland 5601 . Hong Kong Japan APAC 4341 Brazil Australia www. ubs. com/graduates
How to Manage an Enterprise Development Team? www. ubs. com/graduates
Iterative / Lean Development Iterative cycle (e. g. Scrum) · Split work into small, tangible deliverables · Split time into short fixed-length cycles · Limit work per iteration · Communicate: daily stand-ups (10 mins) · Continually improve: reviews after each iteration · Tailor methodology to the team ‘Lean’ principles (e. g. Kan. Ban) · Define workflow stages: To-Do, In-Progress, Complete · Limit tasks per workflow stage · Constrain ‘Technical Debt’ www. ubs. com/graduates
Task Board @ UBS www. ubs. com/graduates
Essential Practices for Sustainable Development Modular Design Compose the system from modular services. Strive to make the software maintainable, above all else. Source Control Single shared code repository (global). Automated Re-build after every check-in… never break the build! Builds Repeatable process. Auditable. Unit Tests (TDD) Write tests first (delivers better designs). Learn Io. C and a Mocking framework. Run the tests on the build. Aim for high test coverage (>70%). ‘One-Click’ Create scripts to install your most recent build, to any environment. Deploy Continuous Deploy your code automatically, and then run end-to-end tests. Integration Design Patterns Learn the useful OO design patterns, and use them. www. ubs. com/graduates
Essential Practices for Sustainable Development www. ubs. com/graduates
UBS Investment Bank IT: Award-winning Technology Best FX Post-Trade Service Profit & Loss 2010 UBS Delta: Most Innovative Actuarial Software Life & Pension Risk 2010 Best All Round Solutions for Prime Broking Asiamoney 2006 -2009 UBS Delta: Best Technology Vendor for Risk Management Credit Awards 2009 Best All Round Solutions for Prime Broking Thomson Reuters Extel 2001 -2010 Best Firm for Portfolio Trading Execution Thomson Reuters Extel 2008 -2010 Best product innovation for Prime Broking Asiamoney 2009 Best Post Trade Services Global FX Week 2009 No. 1 Internal Crossing The Trade 2010 Best Fixed Income Research and Strategy Technical Analyst Magazine 2009 No. 1 for Currency Forwards, Swaps and Vanilla Options Risk 2009 Technology Innovation Award Credit Magazine 2009, 2010 Best Proprietary Technology Buy-Side Technology 2007 No. 1 for Algorithmic Trading Thomson Reuters Extel 2010 No. 1 First for Overall Post-Trade Services Z/Yen Mc. Lagan 2009 No. 1 for Post Trade Performance in FX Mc. Lagan/Z-Yen 2010 No. 1 for Post Trade Services – North America Z/Yen Mc. Lagan 2009 Best in Algorithms Asian. Investor 2010 www. ubs. com/graduates
SECTION 5 Joining UBS www. ubs. com/graduates
Graduate Training Program (GTP) – Your future at UBS 24 months Getting on board Joining the team Into the future GTP Discovery GTP intro to UBS & Financial Services GTP Fundamentals Role-based Training GT Strategy, Business Model & Operating Principles Technical training based on individual learning needs Permanent Placement Building the network Rotation · The UBS GTP program will equip you with the skills, knowledge and experience to achieve long-term personal and professional goals and challenge you to achieve your potential. · You'll learn the business while developing your technical skills to deliver real world solutions. · By the end of the two year program you’ll be an integral part of the UBS Group Technology team. www. ubs. com/graduates
Ready for take off? Without our systems and infrastructure, we wouldn’t be in business … Apply today at www. ubs. com / graduates www. ubs. com/graduates
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