Starting A Hedge Fund

Posted on November 13, 2009 by

Lets say you want to start a hedge fund. Its not that complicated though you would need some tools and processes set up to run your operations. Off course the variety of tools and processes would depend on the your knowledge and complexity of your strategies.

Though a vanilla hedge fund would need at least the following to exist:

1) Disclosure document.

2) A securities license. (Free)

3) Registration with the NFA or SEC, depending on what you are going to trade and the size of your startup.

4) Private Placement Memorandum, Operating Agreement, Subscription Agreement. If you have a lawyer do this for you it will cost about $15-20k.

5) A broker. IB isn’t a Prime Broker, just a broker. A Prime Broker would be someone like GS, MS, MER, and such. These guys feed you research, steer clients to your fund, and if you are really good and swing a big stick you get inside information. I’m not kidding about that.

6) Auditor – allegedly they are suppose to have passed some licensing exam specifically focused on investments – not some one-clown shop located in the sticks (yes I am referring to Madoff, how he got away with his auditors is beyond me). Cost: $5-10k / year.

7) Administrator – you can have someone in house to take care of your IT infrastructure and accounting. You also can outsource that to a hedge fund administrator who would do all that for you.

10) Have a Bloomberg terminal.

11) You must be self sufficiently funded.

12)  You must have A LOT of experience in all four markets ( Equity, Bonds, FX and Commodities ), plus futures and options.

* If you want to manage money for clients who live in California you have to be a Registered Investment Advisor in that state, regardless of the amount of money you are managing. You have to know the specific laws of each state you have a client in. It’s good to work with an attorney who can keep you out of those nets.

** I would say an audited track record became a must it today’s realities.

*** All together start up fees are going to run 75k+/-.

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Software Development Life Cycle (SDLC)

Posted on September 22, 2009 by

Curtain Raiser

Like any other set of engineering products, software products are also oriented towards the customer. It is either market driven or it drives the market. Customer Satisfaction was the buzzword of the 80′s. Customer Delight is today’s buzzword and Customer Ecstasy is the buzzword of the new millennium. Products that are not customer or user friendly have no place in the market although they are engineered using the best technology. The interface of the product is as crucial as the internal technology of the product.

Market Research

A market study is made to identify a potential customer’s need. This process is also known as market research. Here, the already existing need and the possible and potential needs that are available in a segment of the society are studied carefully. The market study is done based on a lot of assumptions. Assumptions are the crucial factors in the development or inception of a product’s development. Unrealistic assumptions can cause a nosedive in the entire venture. Though assumptions are abstract, there should be a move to develop tangible assumptions to come up with a successful product.

Research and Development

Once the Market Research is carried out, the customer’s need is given to the Research & Development division (R&D) to conceptualize a cost-effective system that could potentially solve the customer’s needs in a manner that is better than the one adopted by the competitors at present. Once the conceptual system is developed and tested in a hypothetical environment, the development team takes control of it. The development team adopts one of the software development methodologies that is given below, develops the proposed system, and gives it to the customer.

The Sales & Marketing division starts selling the software to the available customers and simultaneously works to develop a niche segment that could potentially buy the software. In addition, the division also passes the feedback from the customers to the developers and the R&D division to make possible value additions to the product.

While developing a software, the company outsources the non-core activities to other companies who specialize in those activities. This accelerates the software development process largely. Some companies work on tie-ups to bring out a highly matured product in a short period.

Popular Software Development Models

The following are some basic popular models that are adopted by many software development firms

A. System Development Life Cycle (SDLC) Model
B. Prototyping Model
C. Rapid Application Development Model
D. Component Assembly Model

A. System Development Life Cycle (SDLC) Model

This is also known as Classic Life Cycle Model (or) Linear Sequential Model (or) Waterfall Method. This model has the following activities.

1. System/Information Engineering and Modeling

As software is always of a large system (or business), work begins by establishing the requirements for all system elements and then allocating some subset of these requirements to software. This system view is essential when the software must interface with other elements such as hardware, people and other resources. System is the basic and very critical requirement for the existence of software in any entity. So if the system is not in place, the system should be engineered and put in place. In some cases, to extract the maximum output, the system should be re-engineered and spruced up. Once the ideal system is engineered or tuned, the development team studies the software requirement for the system.

2. Software Requirement Analysis

This process is also known as feasibility study. In this phase, the development team visits the customer and studies their system. They investigate the need for possible software automation in the given system. By the end of the feasibility study, the team furnishes a document that holds the different specific recommendations for the candidate system. It also includes the personnel assignments, costs, project schedule, target dates etc…. The requirement gathering process is intensified and focussed specially on software. To understand the nature of the program(s) to be built, the system engineer or “Analyst” must understand the information domain for the software, as well as required function, behavior, performance and interfacing. The essential purpose of this phase is to find the need and to define the problem that needs to be solved .

3. System Analysis and Design

In this phase, the software development process, the software’s overall structure and its nuances are defined. In terms of the client/server technology, the number of tiers needed for the package architecture, the database design, the data structure design etc… are all defined in this phase. A software development model is thus created. Analysis and Design are very crucial in the whole development cycle. Any glitch in the design phase could be very expensive to solve in the later stage of the software development. Much care is taken during this phase. The logical system of the product is developed in this phase.

4. Code Generation

The design must be translated into a machine-readable form. The code generation step performs this task. If the design is performed in a detailed manner, code generation can be accomplished without much complication. Programming tools like compilers, interpreters, debuggers etc… are used to generate the code. Different high level programming languages like C, C++, Pascal, Java are used for coding. With respect to the type of application, the right programming language is chosen.

5. Testing

Once the code is generated, the software program testing begins. Different testing methodologies are available to unravel the bugs that were committed during the previous phases. Different testing tools and methodologies are already available. Some companies build their own testing tools that are tailor made for their own development operations.

6. Maintenance

The software will definitely undergo change once it is delivered to the customer. There can be many reasons for this change to occur. Change could happen because of some unexpected input values into the system. In addition, the changes in the system could directly affect the software operations. The software should be developed to accommodate changes that could happen during the post implementation period.

B. Prototyping Model

This is a cyclic version of the linear model. In this model, once the requirement analysis is done and the design for a prototype is made, the development process gets started. Once the prototype is created, it is given to the customer for evaluation. The customer tests the package and gives his/her feed back to the developer who refines the product according to the customer’s exact expectation. After a finite number of iterations, the final software package is given to the customer. In this methodology, the software is evolved as a result of periodic shuttling of information between the customer and developer. This is the most popular development model in the contemporary IT industry. Most of the successful software products have been developed using this model – as it is very difficult (even for a whiz kid!) to comprehend all the requirements of a customer in one shot. There are many variations of this model skewed with respect to the project management styles of the companies. New versions of a software product evolve as a result of prototyping.

C. Rapid Application Development (RAD) Model

The RAD modelis a linear sequential software development process that emphasizes an extremely short development cycle. The RAD model is a “high speed” adaptation of the linear sequential model in which rapid development is achieved by using a component-based construction approach. Used primarily for information systems applications, the RAD approach encompasses the following phases:

1. Business modeling

The information flow among business functions is modeled in a way that answers the following questions:

What information drives the business process?
What information is generated?
Who generates it?
Where does the information go?
Who processes it?

2. Data modeling

The information flow defined as part of the business modeling phase is refined into a set of data objects that are needed to support the business. The characteristic (called attributes) of each object is identified and the relationships between these objects are defined.

3. Process modeling

The data objects defined in the data-modeling phase are transformed to achieve the information flow necessary to implement a business function. Processing the descriptions are created for adding, modifying, deleting, or retrieving a data object.

4. Application generation

The RAD model assumes the use of the RAD tools like VB, VC++, Delphi etc… rather than creating software using conventional third generation programming languages. The RAD model works to reuse existing program components (when possible) or create reusable components (when necessary). In all cases, automated tools are used to facilitate construction of the software.

5. Testing and turnover

Since the RAD process emphasizes reuse, many of the program components have already been tested. This minimizes the testing and development time.

D. Component Assembly Model

Object technologies provide the technical framework for a component-based process model for software engineering. The object oriented paradigm emphasizes the creation of classes that encapsulate both data and the algorithm that are used to manipulate the data. If properly designed and implemented, object oriented classes are reusable across different applicationsand computer based system architectures. Component Assembly Model leads to software reusability. The integration/assembly of the already existing software components accelerate the development process. Nowadays many component libraries are available on the Internet. If the right components are chosen, the integration aspect is made much simpler.

Conclusion

All these different software development models have their own advantages and disadvantages. Nevertheless, in the contemporary commercial software evelopment world, the fusion of all these methodologies is incorporated. Timing is very crucial in software development. If a delay happens in the development phase, the market could be taken over by the competitor. Also if a ‘bug’ filled product is launched in a short period of time (quicker than the competitors), it may affect the reputation of the company. So, there should be a tradeoff between the development time and the quality of the product. Customers don’t expect a bug free product but they expect a user-friendly product. That results in Customer Ecstasy!

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Hedge Fund Average Software Costs Per Year

Posted on August 16, 2009 by

I saw an estimate of average yearly software related costs of a hedge fund with about 300 mln under management:

Statistical Software Licencse Fees – $30,000

Data Feeds – $80,000

Back Office Software (accounting, CRM, etc) – $50,000

Total Comes up to about: $160,000 / year

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Broker Connectivity and Data Feeds Providers

Posted on August 16, 2009 by

Interactive Brokers.

Patsystems.

IQ Feed.

eSignal.

SmartQuant.

Genesis.

tick-TS TradeBase.

Trading Technologies.

MetaTrader.

FXCM.

FIX Connectivity.

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How Software Companies Die

Posted on June 30, 2009 by

The environment that nutures creative programmers kills management and marketing types – and vice versa. Programming is the Great Game. It consumes you, body and soul. When you’re caught up in it, nothing else matters. When you emerge into daylight, you might well discover that you’re a hundred pounds overweight, your underwear is older than the average first grader, and judging from the number of pizza boxes lying around, it must be spring already. But you don’t care, because your program runs, and the code is fast and clever and tight. You won. You’re aware that some people think you’re a nerd. So what? They’re not players. They’ve never jousted with Windows or gone hand to hand with DOS. To them C++ is a decent grade, almost a B – not a language. They barely exist. Like soldiers or artists, you don’t care about the opinions of civilians. You’re building something intricate and fine. They’ll never understand it.

BEEKEEPING

Here’s the secret that every successful software company is based on: You can domesticate programmers the way beekeepers tame bees. You can’t exactly communicate with them, but you can get them to swarm in one place and when they’re not looking, you can carry off the honey. You keep these bees from stinging by paying them money. More money than they know what to do with. But that’s less than you might think. You see, all these programmers keep hearing their parents’ voices in their heads saying “When are you going to join the real world?” All you have to pay them is enough money that they can answer (also in their heads) “Geez, Dad, I’m making more than you.” On average, this is cheap. And you get them to stay in the hive by giving them other coders to swarm with. The only person whose praise matters is another programmer. Less-talented programmers will idolize them; evenly matched ones will challenge and goad one another; and if you want to get a good swarm, you make sure that you have at least one certified genius coder that they can all look up to, even if he glances at other people’s code only long enough to sneer at it. He’s a Player, thinks the junior programmer. He looked at my code. That is enough. If a software company provides such a hive, the coders will give up sleep, love, health, and clean laundry, while the company keeps the bulk of the money.

OUT OF CONTROL

Here’s the problem that ends up killing company after company. All successful software companies had, as their dominant personality, a leader who nurtured programmers. But no company can keep such a leader forever. Either he cashes out, or he brings in management types who end up driving him out, or he changes and becomes a management type himself. One way or another, marketers get control. But…control of what? Instead of finding assembly lines of productive workers, they quickly discover that their product is produced by utterly unpredictable, uncooperative, disobedient, and worst of all, unattractive people who resist all attempts at management. Put them on a time clock, dress them in suits, and they become sullen and start sabotaging the product. Worst of all, you can sense that they are making fun of you with every word they say.

SMOKED OUT

The shock is greater for the coder, though. He suddenly finds that alien creatures control his life. Meetings, Schedules, Reports. And now someone demands that he PLAN all his programming and then stick to the plan, never improving, never tweaking, and never, never touching some other team’s code. The lousy young programmer who once worshiped him is now his tyrannical boss, a position he got because he played golf with some sphincter in a suit. The hive has been ruined. The best coders leave. And the marketers, comfortable now because they’re surrounded by power neckties and they have things under control, are baffled that each new iteration of their software loses market share as the code bloats and the bugs proliferate. Got to get some better packaging. Yeah, that’s it.

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Should Hedge Funds Disclose Risk Information?

Posted on June 15, 2009 by

In the light of the latest events in the world economy, financial crisis and the role of the hedge fund industry in it I am writing this paper on the topic hedge fund disclosure of their risk information.

The last two decades experienced a real boom in the hedge fund market, which grew from approximately $500 billion in 2000 to the estimated over $2 trillion as of 2008 (Lo, 2000, p.1, Rummel, 2008). Investopedia defines hedge fund as an “aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns” (Investopedia). An important feature of hedge funds, which commonly separates it from other investment vehicles, such as mutual funds for instance, is that they are very loosely regulated in terms of money allocations. As a result, despite the fact that hedge funds normally disclose their strategies, the risk associated with the investments is almost never known to the public. Such a policy of nondisclosure of risks associated with the investors’ money is unacceptable and hedge funds should fully disclose all risk information regarding their portfolio allocations to the public.

Hedge funds have always represented a lucrative form of investment for sophisticated money holders as double and triple digit returns in the unprecedented bullish market in the late 1990s created a true euphoria regarding hedge funds as new forms of fixed asset allocation (Lo, 2000, p.1). However, the Long Term Capital Management’s (LTCM) multi-billion dollar crash in 1998 which caused a significant market debacle, in financial markets proved that hedge funds did not represent a risk-free investment. In his speech at the Federal Reserve Bank of Atlanta in May 2006, Chairman Bernanke mentioned that the collapse of LTCM “precipitated the first in-depth assessment by policymakers of the potential systemic risks posed by the burgeoning hedge fund industry.” The more recent collapse of the two multi-billion dollar Bear Stearns hedge funds once again confirmed the fact that hedge funds are quite often take too much risk in their investments.

The current situation with the transparency of hedge markets is based on the Securities Act of 1933 and the Company Investment Act of 1940. According to the Securities Act, hedge funds are sold as private investments and, thus, any information regarding them is not subject to public scrutiny (Securities Act, 1933). At the same time Company investment Act of 1940 grants hedge funds a special status under which they can operate under more loose conditions than other funds (Company investment Act, 1940). Thus, legally, hedge funds are much less regulated by the government agencies and are able to undertake riskier investment strategies. Government’s attempt to monitor hedge funds’ activities in the beginning of the century was challenged in the court and in July 2006 the case was overturned by the court of appeals (Goldstein vs. SEC, 2006).

Nevertheless the excessive risk parameter that is involved in mutual funds’ money allocation is quite often beyond any reasonable limits. The Working Group assigned by the Federal Reserve Commission stated that a new regulation environment should be fostered in order to limit extreme leverage and risk taking by hedge funds (Bernanke, 2006). There are several major reasons from the investor’s point of view why hedge funds should disclose risk information regarding risks involved in their strategies.

First of all, hedge funds, as any other investment vehicles, should realize to the full extent the risks involved with the market exposure of each particular investment or manager. All these risks should be aligned with the fund’s overall strategy in the market openly declared and available for public review. At present, this is far from being the reality with the hedge funds. Oftentimes, separate trades in the funds are taking on very risky positions attempting to gain on total fund’s leverage. Most of the times, investors have no idea what is going on, even if the overall report regarding hedge fund activities is available to them. In 2006, Amaranth hedge fund collapsed asserting $6 billion losses due to natural gas speculations: one specific kind of trade that was too excessive (Rummel, 2008).

Another reason for public risk disclosure lies in the fact that there is a certain proportion of risk-return that each investor is comfortable with. Most of the hedge funds are providing results of their performances based only on the return they provide, while the risk taken in order to provide these returns is quite often beyond the acceptable range of the investors in the fund. Such an approach inevitably leads to higher risk exposures and highly leveraged allocations which would oftentimes be unacceptable in the ordinary equity or fixed income market. LTCM had the highest disproportion of real assets and obligations in 1998. The level of risks undertaken by the fund was oftentimes several times higher the acceptable return, what in the end resulted in a cascade margin calls from the creditors which were nothing to cover with (Coy and Woolley, 1998). Despite the fact that current hedge funds are not operating under such leverages as LTCM, the degree of risk-return is estimated to be much higher than in other types of investments.

Finally, as Lo (2006) put it, hedge funds, as institutions require “stability, and consistency in a well-defined investment process that is institutionalized, and not dependent on any single individual” (p.2). In other words, the complete risk assessment should not only be derived from individuals’ (management’s) prospective. Quite often investment strategies undertaken by hedge funds ignore potential requirements of the investors for steady and reliable returns on their money. This goal is going to the second plan while the short-term profit chase ensues. Thus, the very aspect of relative investment stability is undermined from the investors’ prospective, while hedge fund managers are free to play with the investments at their own preferences. Such inconsistency between the goals of management and investors’ intentions would not be possible should investors have the risk information prior to their investments. On the other hand, this, obviously, would result in the loss of a significant part of potential depositors in the hedge fund, which is the last thing hedge fund managers would like to see.

Risk disclosure for the hedge funds is not the issue that has only proponents of the idea. There are, as a matter of fact, many professionals in the financial area who believe that regulations requiring hedge fund risk disclosure cannot help the situation and, therefore, should not be adopted. For instance, Matthew Lynn, the head of a hedge fund based in London, argued that disclosure of risk information would be detrimental to the very existence of hedge funds as investment entities (Lynn, 2007). His main arguments against detailed risk disclosure are based on the facts that: a) risk parameters for hedge funds are central to its line of business (the same as formula for Coca Cola); b) disclosure of risk would undermine some strategies of the hedge funds such as secret buyout of securities; c) up to this point, hedge funds have not made markets unstable under current conditions and imposing extra limitations on them would suppress innovation and mobility (Lynn, 2007). However, there are counterarguments to all these statements.

It is inappropriate to claim that risk parameters are of the same value to hedge funds based on the same notion of comparison to the other companies’ core products or services. Rather, it is more appropriate to compare them to the company’s financial statements, which help investors determine whether the company is worth investing to. After all, risk disclosure does not require hedge funds to disclose their structure of operations or provide detailed list of investments. Secondly, secret buyouts of the securities could not be significantly affected by risk disclosures since they are going to be revealed only in the end of the certain period. Therefore, it would be impossible to recognize any buyouts conducted by the hedge fund until that time. Finally, the claim that hedge funds did not cause any market disruptions is simply absurd: in 1998 the Government had to create a special bailout Commission to guarantee LTCM astronomical obligations which threatened to send negative ripples throughout the entire financial system (Coy, Wooley, 2007). The same thing happened in 2007 with the Bear Stearns hedge funds. Almost every time a large hedge fund collapses, the interconnected financial structure of the market is at risk, and, if the level of this interconnection is fairly high, the government has to step in. Therefore, hedge funds do cause significant market disruptions, which are the direct consequence of their credit risk policies.

Hedge funds’ risk transparency has been on the issue since the late 1990’s when the first major collapse of a hedge fund occurred and threatened to bring the entire financial system to a halt. Despite certain steps undertaken by the government agencies towards transparency in hedge funds risk exposures, the situation is still far from being settled. Nevertheless, each time a hedge fund goes down due to unjustified high risk exposure, it takes down the investments of many stakeholders who would not invest in the fund had they enough information regarding its risk-return ratio. A possible regulation requiring hedge funds disclose their risk involvement would not turn away the aggressive investors who are willing to take additional risk for a higher return possibility. At the same time it would ensure that those who are not willing to take on such a risk are protected from the failures that the current system yields. Therefore, legislators should devise a special regulatory framework that would make hedge funds reveal their risk parameters.

References

Bernanke, B. S. (2006, May 16). Hedge Funds and Systemic Risk. Speech at the Federal      Reserve Bank of Atlanta’s 2006 Financial Markets Conference, Sea Island, Georgia    Retrieved March 15, 2008 from http://www.bis.org/review/r060522a.pdf

Coy, P. & Wooley, S. (1998). Failed Wizards of Wall Street. Business Week Online. Retrieved           March 15, 2008 from http://www.businessweek.com/1998/38/b3596001.htm

Goldstein vs. SEC. (2006). Retrieved March 30, 2008 from     http://www.seclaw.com/docs/ref/GoldsteinSEC04-1434.pdf

Lo, A. W. (2000). Risk Management for Hedge Funds: Introduction and Overview. Retrieved        March 10, 2008 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=283308

Lynn, M. (2007, October 17). Hedge Funds Can’t Reveal Secrets and Do Business: Matthew   Lynn. Bloomberg. Retrieved March 30, 2008 from            http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aABI8tRBTVkU

Rummell, N. (2008, February 25). GAO: Hedge funds have improved disclosure, but concerns             still exist. Financial Week. Retrieved March 10, 2008 from             http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080225/REG/33290841/10         36

Hedge Fund Definition. Retrieved March 30, 2008 from            http://www.investopedia.com/terms/h/hedgefund.asp

University of Cincinnati. General Rules and Regulations Promulgated under the Securities Act         of 1933. Retrieved March 30, 2008 from   http://www.law.uc.edu/CCL/33ActRls/rule501.html

Fung, W. & Hsieh, D. A. (2005). The Risk in Hedge Fund Strategies: Theory and Evidence from    Long/Short Equity Hedge Funds. Retrieved March 5, 2008 from http://finance.wharton.upenn.edu/~rlwctr/DHsieh.pdf

A very good paper on different types of risks involved in certain hedge fund strategies is written by two professors specializing in hedge funds and (Duke and London School). A number of other scholars provided great primary statistical data for the paper as well.

Jagannathan, R., Malakhov, A., Novikov D. (2006, January). Do Hot Hands Persist among   Hedge Fund? Retrieved March 5, 2008 from     http://www.usc.edu/schools/business/FBE/seminars/papers/F_10-6-06_JAGANN-            HedgeFund.pdf
The paper contains a hand-on empirical evaluation of personal factors driving hedge funds’ decisions. Peer-reviewed and presented at the USC Financial seminar.

Ding, B., Getmansky, M., Liang, B., Wermers, R. (2006, November). Market Volatility, Investor      Flows, and the Structure of Hedge Fund Markets. Retrieved March 5, 2008 from             http://www.isenberg.umass.edu/finopmgt/uploads/basicContentWidget/15365/Getmansky%20paper.pdf

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Hilarious Post From Craigslist (very funny)

Posted on June 15, 2009 by

I believe this post became a web sensation at one point.

One self obsessed lady is looking for a rich man by posting an ad on craigslist:

Okay, I’m tired of beating around the bush. I’m a beautiful (spectacularly beautiful) 25 year old girl. I’m articulate and classy. I’m not from New York. I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 – 250. But that’s where I seem to hit a roadblock. 250,000 won’t get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she’s not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?

Here are my questions specifically:
- Where do you single rich men hang out? Give me specifics- bars, restaurants, gyms
-What are you looking for in a mate? Be honest guys, you won’t hurt my feelings
-Is there an age range I should be targeting (I’m 25)?
- Why are some of the women living lavish lifestyles on the upper east side so plain? I’ve seen really ‘plain jane’ boring types who have nothing to offer married to incredibly wealthy guys. I’ve seen drop dead gorgeous girls in singles bars in the east village. What’s the story there?
- Jobs I should look out for? Everyone knows – lawyer, investment banker, doctor. How much do those guys really make? And where do they hang out? Where do the hedge fund guys hang out?
- How you decide marriage vs. just a girlfriend? I am looking for MARRIAGE ONLY

Please hold your insults – I’m putting myself out there in an honest way. Most beautiful women are superficial; at least I’m being up front about it. I wouldn’t be searching for these kind of guys if I wasn’t able to match them – in looks, culture, sophistication, and keeping a nice home and hearth.

Here is an awesome response of a man with an obvious financial background (judging by the use of financial terms in his writing)

I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament. Firstly, I’m not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here’s how I see it.

Your offer, from the prospective of a guy like me, is plain and simple a cr@ppy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity…in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!

So, in economic terms you are a depreciating asset and I am an earning asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!

So in Wall Street terms, we would call you a trading position, not a buy and hold…hence the rub…marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.

Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn’t found you, if not only for a tryout.

By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation.

With all that said, I must say you’re going about it the right way. Classic “pump and dump.” I hope this is helpful, and if you want to enter into some sort of lease, let me know.

Hope that made you smile :) ))

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Open Source Financial Software Companies and Projects List

Posted on June 15, 2009 by

Finance is an area where well-written open-source projects could make a tremendous difference. Therefore there is a quick review of the financial open source projects used and evolving in today’s world of financial software:

QuickFIX/J

http://www.quickfixj.org/

The Financial Information eXchange (FIX) protocol is a messaging standard developed specifically for the real-time electronic exchange of securities transactions. FIX is a public-domain specification owned and maintained by FIX Protocol, Ltd (FPL).

QuickFIX/J is a full featured messaging engine for the FIX protocol. It is a 100% Java open source implementation of the popular C++ QuickFIX engine.

Features:

* Free! It costs nothing and has a very liberal open source licence.
* Full source code available (also at no cost).
* Supports FIX versions 4.0 – 4.4, 5.0/FIXT1.1.
* Runs on any hardware and operating system supported by 1.4+ Java SE or compatible VM.
* Compatibility with QuickFIX C++ Java Native Wrapper API (easy to upgrade)
* Java NIO asynchronous network communications for scalability (using Apache MINA)
* Supports embedded SSL with Java 5+
* Provides standard JMX MBeans for FIX engine management
* Easy to embed in existing Java applications.
* Choice of message processing threading strategies
* Communication transports for TCP sockets and VM pipes.
* Metadata-driven parsing and validation.
* Metadata-driven code generation of type-safe FIX message-related classes.
* Metadata API for use at application level (for example, FIX messaging UI).
* Support for protocol customizations (new messages, fields, constraints).
* Session state storage plugins: JDBC, File, SleepyCat/JE, In memory
* Logging plugins: JDBC, File, SFL4J (supports JDK1.4 logging, Log4J, Commons Logging), Console, Composite
* Failover and High Availability.
* Scheduling of session connections.
* Many automated unit and acceptance tests.
* Example applications: Simple Swing order entry UI and a console-based order execution simulator.
* Commercial support available from multiple sources.

QuantLib

http://www.quantlib.org/

The QuantLib project is aimed at providing a comprehensive software framework for quantitative finance. QuantLib is a free/open-source library for modeling, trading, and risk management in real-life.

QuantLib is written in C++ with a clean object model, and is then exported to different languages such as C#, Objective Caml, Java, Perl, Python, GNU R, Ruby, and Scheme. The QuantLibAddin/QuantLibXL project uses ObjectHandler to export an object-oriented QuantLib interface to a variety of end-user platforms including Microsoft Excel and OpenOffice.org Calc. Bindings to other languages and porting to Gnumeric, Matlab/Octave, S-PLUS/R, Mathematica, COM/CORBA/SOAP architectures, FpML, are under consideration. See the extensions page for details.

Appreciated by quantitative analysts and developers, it is intended for academics and practitioners alike, eventually promoting a stronger interaction between them. QuantLib offers tools that are useful both for practical implementation and for advanced modeling, with features such as market conventions, yield curve models, solvers, PDEs, Monte Carlo (low-discrepancy included), exotic options, VAR, and so on.

The library could be exploited across different research and regulatory institutions, banks, software companies, and so on. Being a free/open-source project, quants contributing to the library would not need to start from scratch every time.

AMQP

http://www.ampq.org/

AMQP is an Open Standard for Messaging Middleware:

Middleware: software that connects other software together. Middleware connects islands of automation, both within an enterprise and out to external systems.

By complying to the AMQP standard, middleware products written for different platforms and in different languages can send messages to one another. AMQP addresses the problem of transporting value-bearing messages across and between organisations in a timely manner.

Messaging and integration is a necessary part of all enterprise systems

  • All significant IT efforts include a messaging and integration component (10%-30% of project cost)
  • Proprietary middleware has been a source of lock-in, preventing competition in middleware for both quality and cost
  • Interoperability is more difficult than it need be

Other open business standards would ideally avoid being founded on proprietary technologies, and use open information and business process models and message formats. However, NO suitable open technology exists to actually send the messages!

AMQP aims to become the de-facto open standard for messaging middleware

Esper

http://esper.codehaus.org/

Esper is a component for CEP and ESP applications, available for Java as Esper, and for .NET as NEsper.

Esper and NEsper enable rapid development of applications that process large volumes of incoming messages or events. Esper and NEsper filter and analyze events in various ways, and respond to conditions of interest in real-time.

Complex Event Processing, or CEP, is technology to process events and discover complex patterns among multiple streams of event data. ESP stands for Event Stream Processing and deals with the task of processing multiple streams of event data with the goal of identifying the meaningful events within those streams, and deriving meaningful information from them. Real-time OLAP (online analytical processing) and continuous query are also terms used frequently for this technology.

The Esper engine has been developed to address the requirements of applications that analyze and react to events. Some typical examples of applications are:

  • Business process management and automation (process monitoring, BAM, reporting exceptions, operational intelligence)
  • Finance (algorithmic trading, fraud detection, risk management)
  • Network and application monitoring (intrusion detection, SLA monitoring)
  • Sensor network applications (RFID reading, scheduling and control of fabrication lines, air traffic)
Marketcetera
http://www.marketcetera.com/

Open Source Trading Platform

Marketcetera is an open source platform for strategy-driven trading, providing you with all the tools you need for strategy automation, integrated market data, multi-destination FIX routing, broker neutrality and more.

Marketcetera provides an open-source trading platform that hedge funds and others use to process and deliver trades through a brokerage to an exchange (like NASDAQ).
ActiveQuant (activestocks.eu)
ActiveQuant is an open source software solution for development of quantitatively focused trading solutions.
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Will Open Source Software Come To Hedge Fund Industry

Posted on June 15, 2009 by

More and more analysts start to believe that license based software business models are “pascaleozoic era” relics of the software industry. Though hedge fund software industry does not seem to catch up with the upcoming trend in the software business and continue to ignore open source software as an important part of their business operations.

Why? Why do hedge fund managers prefer paying annual license fees, support fees, one time engineering fees, integration fees for the proprietary systems that suck them into “long term relationship” with their software vendor instead of easy to start and easy to end “one night stands” with open source software projects. Just to get on board and migrate existing operations data to the new software system takes humongous amount of time and, off course, money – that eventually lead to “marrying” software vendor “for better or for worse”.

The answer here most likely lies in the specifics of the hedge fund business, where investing strategies are managers’ bread and butter and are guarded better than detainees in Guantanamo. Hedge  fund managers are very sensitive when it comes to giving someone access to their investing strategies or even worse – making them public.

Would the hedge fund managers benefit from opening their software closets and contributing at least a bit of their technological wealth to the industry in general. My personal opinion – yes they will. Technology, hardware and software, is the major overhead cost in the business after headcount. By committing yourself to a certain proprietary system you are limiting yourself not only legally but also technologically. You are constrained by the technological capacity and innovative potential of your software vendor. Your software vendor in its turn is in the business of making money and you are his “cow to milk” therefore all the new features would come at a price with a three digits per hour price tag.  If hedge fund open source software will take off and become popular with many contributors you would have an access to a much bigger and more diverse pool of technological “know how”. It will cost you nothing, besides customizing/integrating development cost while implementing it into your own operations infrastructure. Open source may give you tips on improvement to your strategies, lead to new ideas or you can simply adopt a lot of it without any changes. Unlike most of the proprietary systems, open source software will not bind you to a certain hardware manufacturers (that are used by your software vendors) and you would be free to chose what is best for you (and your pocket).

One can argue that its all good, but how about support, reliability and more importantly timeliness of those two. At least having a software vendor there is someone who can add a newly desired feature (that is very important) and at least there is some one to call when the system goes down and this someone is obliged to fix it for you in a matter of days.  The answer to that is – if the open software would become popular in the hedge fund business there would be tons and tons of the individual freelance developers as well as dedicated software companies who would be specializing in customization and improvement of it. I believe you would be able to get and so much desired new features and support and you also will be able to shop for these services. Eventually you as a consumer will win.

If open source software has brought so much positive to consumers in other software industries (think Mozilla Firefox, Eclipse) why it can not do well in hedge fund software field???

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Free, High Quality Mathematical, Statisticial, Financial C++ Libraries

Posted on June 15, 2009 by

Check out www.boost.org

A few specifics of interest include Regular Expressions, a soon to be released Time Series, date/time operations, some geometry constructs, state machine tools, and, well, the list goes on.

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