Optimal trading of ETFs: Spreadsheet prototypes and applications to client-server applications

This paper presents an application of an Excel spreadsheet–development methodology used by quantitative analysts and traders in financial markets. The spreadsheet used regression and Excel's Solver to determine the optimal investment of a firm's risk capital. The proprietary methodology used to develop real–time trading tools and its repetitive design structure allowed the firm to become a market–maker exchange traded fund (ETF) rapidly. By adhering to the methodology, the firm's documentation of user requirements, data inputs, calculations, and user interfaces, and a full prototype using Excel, made incremental growth possible and provided a solid foundation for conversion into coded software. Rapid development gave the firm the opportunity to derive revenue from market–making activities in new investment products; these would become a major source of revenue. This methodology, which the authors presented in 2001 at the International Conference on Software Quality in Pittsburgh, Pennsylvania, and its implementation led to the development of a complete trading–system development methodology.