Students in the Berkeley Master of Financial Engineering (MFE) Program have a new mobile tool to help them better understand options pricing, thanks to their predecessors in the class of 2014.
Before graduating earlier this year, a team of seven MFE classmates created a new mobile phone application intended to help students understand pricing of complex derivatives and the sensitivity of inputs in pricing equations. Since its launch in the Apple iTunes Store in April, the app has been downloaded by about 200 users.
The app, called ExoPricer, prices financial derivatives instantly, providing descriptions and formulas for vanilla options and exotic stock options. The app’s intent is to help people more easily understand the underlying dynamics that contribute to the pricing of derivatives.
“It’s perfect,” says Simon He, MFE 15, president of the Financial Engineering Student Association. He downloaded the app about a month ago and is recommending it to peers because it’s easy to use and comprehensive. “At least 30 percent of my classmates are using it, and my friends in China are using it. The code is very refined, and you get results instantly.”
Students from the class of 2014 began developing ExoPricer in July 2013 after they were challenged to price a very complicated derivative in Adjunct Professor Domingo Tavella’s Quantitative Methods in Derivatives Pricing class, says Wilson Wong, MFE 14.
The assignment required weeding through many academic papers, often taking the students days or even weeks to gather the relevant information, Wong says.
“This resulted in all-nighters and an unpleasant experience, even though it was a very valuable learning experience,” he says.
Li Sun, MFE 14, another student in Tavella’s class, suggested writing an application to help alleviate some of the research headaches. Wong and Sun, working with five classmates, decided to include visualizations of sensitivities that affect the pricing of options contracts. These sensitivities are often represented by what are called the “Greeks.” One example is delta, which measures the sensitivity of an option’s theoretical value to a change in the price of the option’s underlying asset.
Li and Wong researched the technical details and created a framework for multiple types of options. Then the rest of the team — including Darren Ho, Albert Yu-ying Lee, Kate Matrosova, Chris Phillippi and James Jue Wang, all MFE 14 — started implementing the code and gathering documentation about specific options.
“The app also gave us a chance to apply the key elements of being a quant,” Wong says.
ExoPricer took less than five months to complete. The team was able to finish its work this past January and push ExoPricer on to the iTunes App Store before graduation. Its cost: 99 cents.
In addition to be a useful study aid, Wilson says, the app can help prepare graduates for investment bank job interviews and educate investors and bankers.
“This is one of the reasons I enjoy my work so much,” says Linda Kreitzman, executive director of the Berkeley Master of Financial Engineering Program. “Our students are very creative in spite of a very rigorous curriculum.”