C++ Design Patterns and Derivatives Pricing

This book is aimed at a reader who has studied an introductory book on mathematical
finance and an introductory book on C++ but does not know how to put the
two together. My objective is to teach the reader not just how to implement models
in C++ but more importantly how to think in an object-oriented way. There are
already many books on object-oriented programming; however, the examples tend
not to feel real to the financial mathematician so in this book we work exclusively
with examples from derivatives pricing.
We do not attempt to cover all sorts of financial models but instead examine a
few in depth with the objective at all times of using them to illustrate certain OO
ideas. We proceed largely by example, rewriting, our designs as new concepts are
introduced, instead of working out a great design at the start. Whilst this approach
is not optimal from a design standpoint, it is more pedagogically accessible. An
aspect of this is that our examples are designed to emphasize design principles
rather than to illustrate other features of coding, such as numerical efficiency or
exception safety.
We commence by introducing a simple Monte Carlo model which does not use
OO techniques but rather is the simplest procedural model for pricing a call option
one could write. We examine its shortcomings and discuss how classes naturally
arise from the concepts involved in its construction.
In Chapter 2, we move on to the concept of encapsulation – the idea that a class
allows to express a real-world analogue and its behaviours precisely. In order to
illustrate encapsulation, we look at how a class can be defined for the pay-off of a
vanilla option. We also see that the class we have defined has certain defects, and
this naturally leads on to the open–closed principle.
In Chapter 3, we see how a better pay-off class can be defined by using inheritance
and virtual functions. This raises technical issues involving destruction and
passing arguments, which we address.We also see how this approach is compatible
with the open–closed principle.