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Optimal Trading of ETFs: Spreadsheet Prototypes and Applications to Client-Server Applications

Center for Professional Development, Illinois Institute of Technology, Chicago, Illinois 60616
Stuart School of Business, Illinois Institute of Technology, Chicago, Illinois 60661
kumiega{at}stuart.iit.edu
bvanvliet{at}stuart.iit.edu

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.

Key Words: securities; brokerage; trading; system design; operations; OR/MS implementation