CS 335 - Fall 2021: Course Outline

Computational Methods in Business and Finance

Instructor: Christopher Batty Email: [email protected]

Office hours: Thursdays 12:00pm-1:00pm (or by appointment)
Office hour location: CS 335 Teams channel

TAs: Sam Barr, [email protected]

Danny Kong, [email protected]
Chendi Ni, [email protected]
Shenghao Yang, [email protected]
TA office hours for each assignment/exam will be posted on Piazza and held on MS Teams.

CS335 websites:

• LEARN: https://learn.uwaterloo.ca/
• Piazza: https://piazza.com/uwaterloo.ca/fall2021/cs335
• CrowdMark https://app.crowdmark.com/sign-in/waterloo

• Course Description: This course will cover topics such as: lattice methods for pricing contingent claims,
Monte Carlo techniques for pricing options and evaluating investment strategies, use of optimization
software for portfolio optimization, solution of nonlinear equations (yield to maturity, implied volatility),
floating point error propagation, and polynomial interpolation. Assignments will involve both theoretical
problems and practical programming tasks using Python.

• Course Objectives: This course will give students in the business-related programs in the Mathematics
Faculty an introduction to basic computational methods used in business and financial applications.

• Tentative weekly schedule (dates/topics are approximate):

Sept 8 Introduction, two state tree, no arbitrage

Sept 13 Random walk on a lattice, Brownian motion
Sept 20 Ito’s lemma, lattice method
Sept 27 Dynamic programming, order of accuracy Assignment 1 due (Sept 27)
Oct 4 Black-Scholes equation, Hedging, Floating point
Oct 11 Reading week
Oct 18 Stability, root finding methods Assignment 2 due (Oct 18)
Oct 25 Midterm
Nov 1 Convergence theory
Nov 8 More on convergence
Nov 15 Monte Carlo, Error, complexity, discrete hedging Assignment 3 due (Nov 15)
Nov 22 Delta hedge simulation, measuring risk
Nov 29 CPPI simulation, Dynamic rebalancing
Dec 6 higher dimension simulation, MC vs lattice
Dec 7 Classes end Assignment 4 due (Dec 7)

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• Text and References: The primary source of information for the course will be the lecture slides and
videos, which will be made available online (via LEARN). A second important reference is the official
course notes, which will also be made available online. There is more material in these notes than we are
going to cover in this class, but they will complement and reinforce the material covered in the lectures.

• Programming Languages: Python / Jupyter Notebooks. The Python language has various libraries to
support mathematical computing, including NumPy, SciPy, and Matplotlib. We will make use of Jupyter
notebooks, which provide a convenient, interactive web-based programming environment for preparing
your assignment solutions. You are expected to become comfortable working with Python and Jupyter.
You should start the first assignment as soon as possible to begin setting up and getting familiar with these
tools. The Anaconda distribution is one convenient way to get set up, if you are installing Python/Jupyter
on your personal machine: https://www.anaconda.com/distribution/ Alternatively, you
may prefer to use an online Jupyter environment; Waterloo has one that you can use, located at https:
//uwaterloo.syzygy.ca/, and the Math faculty provides one at https://jupyter.math.
uwaterloo.ca/
The official Jupyter Notebook Quickstart guide is here: https://jupyter.readthedocs.io/
en/latest/content-quickstart.html We will generally assume Python 3.5 or later.
There are a huge number of online sources of introductory material for working with Jupyter/Python.
An especially useful introduction to Python with NumPy (for numerical computing) is here: https:
//cs231n.github.io/python-numpy-tutorial/. Some basic functionality may be cov-
ered/discussed as part of the course, and some example Notebooks/code may be made available on the
course webpage to demonstrate particular features. The course notes also contain a few examples of
Python code. However, it is ultimately your responsibility to get up to speed with the use of Python
and Jupyter notebooks. The focus of this course is on learning general mathematical and financial
computing concepts, rather than the syntax of a particular programming language.

• Assignments: Assignments will be posted on Crowdmark and/or LEARN. Check regularly to make sure
you are using the most recent version (corrections will be made to the web posting, if necessary, and an
electronic announcement made about it).
There will be four assignments. Assignment submissions generally consist of analytical/written work
and/or programming problems. All assignments must be submitted electronically by the posted due date
of the assignment. You must submit your work in two parts:
(1) Upload one or more PDFs/images to Crowdmark containing both your written/analytical work and
your notebooks with results/output included (i.e., tables, figures, numerical data, etc). The TA should be
able to look at your submitted PDFs to immediately see your results, without re-running the notebook
themselves.
(2) Any and all notebooks/code/scripts/data files you wrote to solve the programming problems should
also be submitted electronically as a single ZIP file to the appropriate assignment Dropbox on LEARN.
This should allow the TAs to run your code if necessary.
If you submit one part before the deadline and one part after, the later submission time will be used.
Students are encouraged to discuss assignment solutions with the instructor and TAs after the assignments
are returned, and solutions may be discussed in lectures. However, solutions are not normally posted on
the web.

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• Assignment Late Policy:
A late penalty of 25% per day will be applied (via CrowdMark) to assignment submissions after the
deadline. (For example, if you submit immediately after the deadline, your grade will be calculated and
then multiplied by 25%; each subsequent 24 hours later will incur another 25% penalty. Late penalties
are applied to the entire assignment (i.e., not individual components/questions). Late quizzes, midterms,
or exams will not be accepted, except in extraordinary circumstances.

• Quizzes: Starting around the second week of the course, short weekly quizzes will be posted on LEARN,
and will be due on Fridays. These are intended primarily to encourage you to keep up with the course
material, and will consist of a small number of true/false or multiple choice questions. Nevertheless, they
will be graded and will contribute to your final course grade.

• Assignment Help: Students may discuss general concepts and problems with other individuals in class.
However, the specific solutions that you submit must be worked through completely by yourself and
written in your own words.
For each assignment, TAs are assigned to handle Piazza queries and provide office hours; this information
will be posted to Piazza. Students are encouraged to visit office hours offered by the instructor and TAs,
and to make use of the Piazza Q&A forums. (Full or partial solutions must not be posted to Piazza by
students, so write your questions/answers with this in mind.)

• Marking:
Assignment/midterm/quiz marks will be made available on CrowdMark or LEARN. Notify the instructor
or a TA immediately if you believe a mark was recorded incorrectly. The marks recorded online are
considered final two weeks after the grades are released for that specific course component.
The assignments will consist of programming problems and analytical questions. Your code and its output
are an important part of the assignment, and as such they should be readable and well-commented. Like-
wise, assignment figures and graphs should be carefully thought out to present your data and conclusions
in an effective and clear manner. Poor presentation of your work will result in a poor mark. Any code and
algorithms you write should be sufficiently well documented through code comments or descriptions to
be readily understood. Matplotlib provides powerful plotting capabilities, which you should use to create
figures/plots for your assignments; these plots should always be appropriately labeled for readability.

• Assignment/Midterm Marking Appeals: If you feel your assignment/midterm was marked incorrectly,
first prepare a clear explanation of specifically what you would like reviewed, and communicate this to
the relevant TA or instructor. The contact person for a given assignment or question will be provided on
LEARN or Piazza; you can always ask the instructor if you are unsure. Requests for reviews of assign-
ment/midterm marking must be submitted within two weeks from the time the assignments/midterm are
returned.

• Course Grading Scheme: There will be four assignments, a midterm, a final exam, and weekly quizzes.
Each assignment will count for 12%, so a total of 48%. The midterm is worth 20%, and the final exam
24%. Quizzes will be worth 8% altogether, with each quiz weighted evenly. If you are unable to write the
midterm, for legitimate reasons, then the final exam will be re-weighted to cover the midterm and final
grade components.
Please contact the instructor as soon as possible if you cannot write the midterm, or complete any other
component of the course. We will do our best to find appropriate accommodation, where it is appropriate
to do so.

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• Midterm: The midterm is tentatively planned for October 25th. Precise format and timing details will be
announced later.

• Final Exam: The Final Exam will be schedule by the Registrar’s office, during a specific 24-hour period.
Students must inform the Registrar’s Office if they have a conflict in the final exam schedule, by the
date posted on the Registrar’s website. Note that there is a precise definition of conflict as defined by the
Registrar’s Office. The course instructor will then be contacted by the Registrar’s Office to make alternate
arrangements. Under no circumstances will the instructor make alternate arrangements for a final exam
unless given instructions by the Registrar’s Office.

• Plagiarism. Plagiarism is representing the work of others as your own. Plagiarism on exams includes
using unauthorized aids or communicating in any way with others during an examination. Plagiarism on
assignments includes copying another individual’s solution and submitting it as your own, allowing an-
other student to copy your solution, collaborating excessively with another student, or obtaining solutions
from any other source. See the section on Discipline below for typical penalties.
All academic offenses are reported to the Associate Dean for Undergraduate Studies and are recorded in
the student’s file. Subsequent academic offenses in the same course or in other courses will lead to more
severe penalties, up to and including suspension and expulsion.
We encourage you to discuss general concepts and problems with classmates, tutors, TAs, and the in-
structor. However, the assignment solutions that you submit must be worked through by yourself and
written in your own words. It is not acceptable to work on an assignment together with someone else
and then write it up individually. The only exceptions are assignments or projects which the instructor
designates as group activities. When discussing course matters, do not take notes, and do not look at
another person’s partial solutions, or show them yours.

• Mental Health Resources. If you or anyone you know experiences any academic stress, difficult life
events, or feelings like anxiety or depression, we strongly encourage you to seek support. On-campus
Resources include:

• Campus Wellness https://uwaterloo.ca/campus-wellness/

• Counselling Services: [email protected] / 519-888-4567 ext 32655 / Needles Hall
North 2nd floor, (NH 2401)
• MATES: one-to-one peer support program offered by Federation of Students (FEDS) and Coun-
selling Services: [email protected]
• Health Services service: located across the creek from Student Life Centre, 519-888-4096. Off-
campus Resources
• Good2Talk (24/7): Free confidential help line for post-secondary students. Phone: 1-866-925-5454
• Here 24/7: Mental Health and Crisis Service Team. Phone: 1-844-437-3247
• OK2BME: set of support services for lesbian, gay, bisexual, transgender or questioning teens in
Waterloo. Phone: 519-884-0000 extension 213

• Diversity. It is our intent that students from all diverse backgrounds and perspectives be well served by
this course, and that students’ learning needs be addressed both in and out of class. We recognize the
immense value of the diversity in identities, perspectives, and contributions that students bring, and the
benefit it has on our educational environment. Your suggestions are encouraged and appreciated. Please
let us know ways to improve the effectiveness of the course for you personally or for other students or
student groups. In particular:

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 • We will gladly honour your request to address you by an alternate/preferred name or gender pro-
noun. Please advise us of this preference early in the semester so we may make appropriate changes
to our records.
• We will honour your religious holidays and celebrations. Please inform us of these at the start of the
course.
• We will follow AccessAbility Services guidelines and protocols on how to best support students
with different learning needs.

• Academic Integrity. In order to maintain a culture of academic integrity, members of the University of
Waterloo community are expected to promote honesty, trust, fairness, respect and responsibility. Refer to
the Academic Integrity website for details: http://www.uwaterloo.ca/academicintegrity/

• Grievance. A student who believes that a decision affecting some aspect of his/her university life has been
unfair or unreasonable may have grounds for initiating a grievance. Read Policy 70, Student Petitions and
Grievances, Section 4, http://www.adm.uwaterloo.ca/infosec/Policies/policy70.
htm When in doubt please be certain to contact the department’s administrative assistant who will provide
further assistance.

• Discipline. A student is expected to know what constitutes academic integrity to avoid committing aca-
demic offenses and to take responsibility for his/her actions. A student who is unsure whether an action
constitutes an offense, or who needs help in learning how to avoid offenses (e.g., plagiarism, cheating) or
about “rules” for group work/collaboration should seek guidance from the course instructor, academic ad-
visor, or the undergraduate Associate Dean. For information on categories of offenses and types of penal-
ties, students should refer to Policy 71, Student Discipline: http://www.adm.uwaterloo.ca/
infosec/Policies/policy71.htm For typical penalties check Guidelines for the Assessment of
Penalties: http://www.adm.uwaterloo.ca/infosec/guidelines/penaltyguidelines.
htm

• Avoiding Academic Offenses. Most students are unaware of the line between acceptable and unaccept-
able academic behaviour, especially when discussing assignments with classmates and using the work of
other students. For information on commonly misunderstood academic offenses and how to avoid them,
students should refer to the Faculty of Mathematics Cheating and Student Academic Discipline Policy
http://www.math.uwaterloo.ca/navigation/Current/cheating_policy.shtml

• Appeals. A decision made or penalty imposed under Policy 70, Student Petitions and Grievances (other
than a petition) or Policy 71, Student Discipline may be appealed if there is a ground. A student who
believes he/she has a ground for an appeal should refer to Policy 72, Student Appeals, http://www.
adm.uwaterloo.ca/infosec/Policies/policy72.htm

• Note for Students with Disabilities. AccessAbility Services, located in the new addition to Needles
Hall, Room 1401, collaborates with all academic departments to arrange appropriate accommodations for
students with disabilities without compromising the academic integrity of the curriculum. If you require
academic accommodations to lessen the impact of your disability, please register with the office at the
beginning of each academic term. https://uwaterloo.ca/accessability-services/

• Intellectual Property. Students should be aware that this course contains the intellectual property of
their instructor, TA, and/or the University of Waterloo. Intellectual property includes items such as:

• Lecture content, spoken and written (and any audio/video recording thereof);

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 • Lecture handouts, presentations, and other materials prepared for the course (e.g., PowerPoint
slides);
• Questions or solution sets from various types of assessments (e.g., assignments, quizzes, tests, final
exams); and
• Work protected by copyright (e.g., any work authored by the instructor or TA or used by the instruc-
tor or TA with permission of the copyright owner).

Course materials and the intellectual property contained therein, are used to enhance a student’s educa-
tional experience. However, sharing this intellectual property without the intellectual property owner’s
permission is a violation of intellectual property rights. For this reason, it is necessary to ask the instructor,
TA and/or the University of Waterloo for permission before uploading and sharing the intellectual prop-
erty of others online (e.g., to an online repository). Permission from an instructor, TA or the University
is also necessary before sharing the intellectual property of others from completed courses with students
taking the same/similar courses in subsequent terms/years. In many cases, instructors might be happy to
allow distribution of certain materials. However, doing so without expressed permission is considered a
violation of intellectual property rights.
Please alert the instructor if you become aware of intellectual property belonging to others (past or
present) circulating, either through the student body or online. The intellectual property rights owner
deserves to know (and may have already given their consent).