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Data Modeling of Financial Derivatives: A Conceptual Approach

Book Description

Written in plain English and based on successful client engagements, Data Modeling of Financial Derivatives: A Conceptual Approach introduces new and veteran data modelers, financial analysts, and IT professionals to the fascinating world of financial derivatives. Covering futures, forwards, options, swaps, and forward rate agreements, finance and modeling expert Robert Mamayev shows you step-by-step how to structure and describe financial data using advanced data modeling techniques.

The book introduces IT professionals, in particular, to various financial and data modeling concepts that they may not have seen before, giving them greater proficiency in the financial language of derivatives—and greater ability to communicate with financial analysts without fear or hesitation. Such knowledge will be especially useful to those looking to pick up the necessary skills to become productive right away working in the financial sector. Financial analysts reading this book will come to grips with various data modeling concepts and therefore be in better position to explain the underlying business to their IT audience.

Data Modeling of Financial Derivatives—which presumes no advanced knowledge of derivatives or data modeling—will help you:

  • Learn the best entity–relationship modeling method out there—Barker's CASE methodology—and its application in the financial industry

  • Understand how to identify and creatively reuse data modeling patterns

  • Gain an understanding of financial derivatives and their various applications

  • Learn how to model derivatives contracts and understand the reasoning behind certain design decisions

  • Resolve derivatives data modeling complexities parsimoniously so that your clients can understand them intuitively

Packed with numerous examples, diagrams, and techniques, this book will enable you to recognize the various design patterns that you are most likely to encounter in your professional career and apply them successfully in practice. Anyone working with financial models will find it an invaluable tool and career booster.

What you'll learn

You will learn how to:

  • Recognize and identify financial derivatives

  • Reuse data modeling patterns and apply them to create something new

  • Data model simple and complex options

  • Data model SWAPS

  • Data model futures and forward contracts

Who this book is for

Data modelers, financial analysts, IT professionals, and anyone with an interest in data modeling and business analysis.

Table of Contents

  1. Title Page
  2. Apress Business: The Unbiased Source of Business Information
  3. Dedication
  4. Contents
  5. About the Author
  6. Acknowledgments
  7. Preface
  8. CHAPTER 1: Introduction
    1. The Purpose of This Book
    2. The Audience for This Book
    3. Book Structure
    4. The Benefits of Data Modeling Patterns
    5. The Conceptual Models Used in This Book
    6. Practice and Dedication
    7. Asking the Right Questions
    8. Conclusion
    9. Recommended Reading
  9. CHAPTER 2: Barker’s Notation
    1. Different Types of Data Models
    2. Entity
    3. Subtypes and Supertypes
    4. Representing Subtypes/Supertypes in a Data Model
    5. Subtype/Supertype Rules
    6. Attributes
    7. Relationships
    8. Rules Governing Relationships
    9. Relationships between Subtypes
    10. Modeling Recursive Relationships
    11. Recursive One-to-Many Relationships
    12. Recursive Many-to-Many Relationships
    13. Recursive One-to-One Relationships
    14. Redundant Relationships
    15. Exclusivity Arc
    16. Barker’s Positional Convention
    17. Conclusion
    18. Recommended Readings
  10. CHAPTER 3: Financial Contracts
    1. What Is a Contract?
    2. Maintaining a Contract Participation History
    3. Differentiating between a Contract and a Contract Type
    4. Assets and Asset Types
    5. The Importance of Ownership Recognition
    6. Modeling Contract Asset Allocations
    7. Contract Structure and Contract Type Structure
    8. Contract Variables and Their Assignment
    9. Business Strategy
    10. Collateral
    11. Contract Delivery
    12. Contract Regulations
    13. Conclusion
    14. Recommended Readings
  11. CHAPTER 4: Modeling Forward Contracts
    1. Defining a Forward Contract
    2. Forward Contract Specifications
    3. Subtyping Contract Type
    4. Forward Contract Data Modeling Basics
    5. Associating Forward Contracts with Asset Types
    6. Forward Contracts and Variable Assignment
    7. Associating Forward Contracts with Business Strategies
    8. Forward Contracts and Delivery
    9. Forward Contracts and Cash Settlements
    10. Offsetting Forward Contracts
    11. Forward Contract Termination
    12. Lawsuits and Violations
    13. Conclusion
  12. CHAPTER 5: Modeling Futures Contracts
    1. Modeling Employment
    2. Subtyping Futures Contracts
    3. Modeling Futures Contracts Participation
    4. Associating Futures Contracts with Paper Assets (Asset Types)
    5. Futures Contracts and Variable Assignment (Complete Model)
    6. Futures Contracts and Variable Assignment (Simplified Model)
    7. Futures Contracts and Variable Observations
    8. Margin Accounts
    9. Futures Contracts Delivery
    10. Rolling Forward Futures Contracts
    11. Summary of the Differences between Futures and Forward Contracts
    12. Conclusion
  13. CHAPTER 6: Modeling Options
    1. Option Positions
    2. Offsetting Orders
    3. Underlying Assets
    4. Associating Option Contracts with Buyers and Sellers
    5. Modeling an Option Asset Type
    6. Modeling Options as Physical Assets
    7. Modeling Option Asset Allocation
    8. The Importance of Mathematical Models
    9. Calculating Volatility from Historical Data
    10. Option Contract Variable Assignment
    11. Option Contract Settlement Type
    12. Automatic Option Exercise
    13. Closing Out Option Contract
    14. Naked Options
    15. Modeling an Option’s Delivery Subject Area
    16. FLEX Options
    17. Conclusion
  14. CHAPTER 7: Modeling Advanced Options Strategies
    1. A Simple Strategy Involving One Stock and One Option
    2. Option Strategy Metadata Modeling
    3. Bull Spreads
    4. Bear Spreads
    5. Revisiting the Contract Structure Entity
    6. Conclusion
    7. Recommended Reading
  15. CHAPTER 8: Swaps and Forward Rate Agreements
    1. Defining a Swap
    2. Plain Vanilla Interest Rate Swaps
    3. Fixed-for-Fixed Currency Rate Swaps
    4. International Swaps and Derivative Organization
    5. Subtyping the Swap Agreement Type
    6. Interest Rate and Interest Rate Type
    7. Fixed and Floating Rate Player Roles
    8. Modeling Swap Contract Participation
    9. Modeling Swap Contract Asset Allocation and Payoff Schedules
    10. Swap Contract Payments
    11. Forward Rate Agreements
    12. FRA Contract Type
    13. Modeling FRA Contract Participation
    14. Modeling FRA Asset Allocation and Payoff Schedules
    15. Modeling FRA Asset Delivery
    16. Modeling ISDA Documentation and Confirmations
    17. Conclusion
  16. CHAPTER 9: Parting Thoughts
    1. What to Do When You Get Stuck
    2. Implementing Subtype/Supertype in a Physical Data Model
    3. Rolling Down Supertype Structure into the Associated Subtypes
    4. Rolling Up Subtypes into the Associated Supertype
    5. Preserving Supertype/Subtype Structures in a Physical Model
    6. Which Option Should You Choose?
    7. Ways to Treat Derived Data
    8. Taking Action
    9. Conclusion
    10. Recommended Reading
  17. Index