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If you want a generic mechanical approach, try to build a time-series model. A log-linear trend model or building an auto-regressive model such as ARMA (on a stationary) series would probably work. As a start point I would plot the data to see what features you notice (seasonality? exponential growth? mean-reversion? t... |
Consider two statistically identical strategies (identical information ratios, sample size, ratio of transaction costs to total profit, etc.) except that one has a much shorter average holding period. Is there a statistical reason to favor one over the other?
At first blush, it would appear the statistical confiden... |
Are shorter holding period strategies better? |
Consider two statistically identical strategies (identical information ratios, sample size, ratio of transaction costs to total profit, etc.) except that one has a much shorter average holding period. Is there a statistical reason to favor one over the other?
At first blush, it would appear the statistical confiden... |
There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods:
1. **The cross-sectional regression approach of BARRA described in [Grinold and Kahn (2000)][1] and Sheikh (1995).** Factor realizations are unobservable and factors are estimated independent... |
Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors? |
I am looking for an all-java implementation of black scholes, preferably open source. I found jquantlib and quantlib (C++). Any other recommendations?
The [jquantlib site][1] seems to be down.
I'd prefer to stay away from a C++ implementation that runs on a jvm like quantlib seems to be. My team would like to loo... |
Is there an all Java options-pricing library (preferably open source) besides jquantlib? |
The most common model is...."Next year's earnings will be this year's earnings plus some percentage (an exponential trend)". Why?
Look closely at the process that generates an earnings number.
Earnings = Sales - Costs
Let's start off by assuming that you can estimate `Sales` with 100% accuracy. And, l... |
The most common model is...."Next year's earnings will be this year's earnings plus some percentage (an exponential trend)". Why?
Look closely at the process that generates an earnings number.
Earnings = Sales - Costs
Let's start off by assuming that you can estimate `Sales` with 100% accuracy. And, l... |
Can anyone recommend a library with an implementation of Black Scholes and Monte Carlo in Java? Ideally something that is Java only and doesn't require a C++ dll or .so or .lib etc..
I've posted a similar question about open source and the choices appear to be quite limited thus far:
Quantlib - C++ using SWIG or ... |
The most common model is...."Next year's earnings will be this year's earnings plus some percentage (an exponential trend)". Why?
Look closely at the process that generates an earnings number.
Earnings = Sales - Costs
Let's start off by assuming that you can estimate `Sales` with 100% accuracy. And, l... |
> **Possible Duplicate:**
> [Is there an all Java options-pricing library (preferably open source) besides jquantlib?](http://quant.stackexchange.com/questions/1908/is-there-an-all-java-options-pricing-library-preferably-open-source-besides-jqu)
<!-- End of automatically inserted text -->
Can anyone recommend a l... |
There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods:
1. **The time-series regression approach of Fama and French.** Factors are defined *ex ante*. Betas to the factors are estimated in the time-series.
2. **The Barra cross-sectional regressio... |
> **Possible Duplicate:**
> [Is there an all Java options-pricing library (preferably open source) besides jquantlib?](http://quant.stackexchange.com/questions/1908/is-there-an-all-java-options-pricing-library-preferably-open-source-besides-jqu)
<!-- End of automatically inserted text -->
Can anyone recommen... |
This is a partial explanation in that trading strategies with longer horizons have higher information ratios, t-statistics, slope coefficients, and R^2 in general.
In other words, if information ratios for both strategies are identical then the longer-term trading strategy is already worse.
John Cochrane illustra... |
Do you know a good article on ETF's counterparty risk analysis? |
I have an upcoming quantitative trading interview (prop desk at a large bank), and I would like to have some good questions to ask about the group. However, I am changing fields from academia and I do not have a good idea about what sort of things I should be looking for, and what questions would 1) probe my fit with t... |
Asking questions like "what is your sharpe ratio" is, IMO, not a good idea. Ask questions that demonstrate your interest in making their firm a success.
1. What markets do you trade? (you listed this one)
2. Describe the firm's high-level process for taking an idea, developing a model, and moving it into producti... |
Actually there are more than just ideas and hints concerning this topic. There is an intuitive solution to your question already, simply using standard model. But, it's not a surprise that you found none literature in your search because it actually comes from a very different topic.
In addition to the recommended ... |
A simple interest rate model in discrete time is the autoregressive model,
$$
I_{n+1} = \alpha I_n+w_n
$$
where $\alpha\in [0,1)$ and $w_n\geq 0$ are i.i.d. random variables. When working with ruin probabilities in a model which incorporates this interest rate model, I've faced that $I$ can reach any positive value... |
Do people use unbounded interest rate models, and what alternatives exist? |
Actually there are more than just ideas and hints concerning this topic. There is an intuitive solution to your question already, simply using standard model. But, it's not a surprise that you found none literature in your search because it actually comes from a very different topic.
In addition to the recommended ... |
I was thinking about writing my own backtester and I realize I have to make some assumptions. So I was hoping I could post what I am planning on doing and hopefully some of you can give me some ideas on how to make it better (I'm sure there is a lot that can be improved).
First of all, my strategy involves holding s... |
How to design a custom equity backtester? |
I'm working on a small application that will provide some charts and graphs to be used for technical analysis. I'm new to TA but i'm wondering if there is a way to mathematically identify the formation of certain patterns. In most of the TA literature I've read the authors explain how to identify these patterns visuall... |
I'm working on a small application that will provide some charts and graphs to be used for technical analysis. I'm new to TA but I'm wondering if there is a way to algorithmically identify the formation of certain patterns. In most of the TA literature I've read the authors explain how to identify these patterns visual... |
How to identitify technical analysis chart patterns algorithmically? |
Actually there are more than just ideas and hints concerning this topic. There is an intuitive solution to your question already, simply using standard model. But, it's not a surprise that you found none literature in your search because it actually comes from a very different topic.
In addition to the recommended ... |
Actually there are more than just ideas and hints concerning this topic. There is an intuitive solution to your question already, simply using standard model. But, it's not a surprise that you found none literature in your search because it actually comes from a very different topic.
In addition to the recommended ... |
Actually there are more than just ideas and hints concerning this topic. There is an intuitive model and solution to your question already using machinery of option theory. But don't worry, it's not a surprise that you didn't find any useful literature in your search because the proposed solution actually comes from a ... |
I am a Linux user, and taking an investment and portfolio management course that uses excel. I was wondering if there are open source alternatives to excel for optimal portfolio calculations? If yes, are they used basically the same way as excel? Thanks and regards! |
I am a Linux user, and taking an investment and portfolio management course that uses excel. I was wondering if there are open source alternatives to excel for optimal portfolio calculations? If yes, are they used basically the same way as excel? |
A [recent article from Forbes][1] seems to indicate that low volatility stocks outperform high volatility stocks over the long run. Does anyone have any supporting or contradicting evidence to this claim? The study cited studied returns for the entire stock market and the 1,000 largest stocks from 1968 to 2008.
Note... |
Do low volatility stocks outperform high volatility stocks over the long run? |
Imagine that prior to entering the market you know beforehand the profit factor of similar situations.
For example:
trades similar to TRADE 1 have yielded a 1.2 pf
trades similar to TRADE 2 have yielded a 2.0 pf
What is the best way to manage lot sizes for the two different trades relative to each o... |
How should you manage lot sizes in this situation? |
How to "uncluster" a set of financial data? |
How to identify technical analysis chart patterns algorithmically? |
I know only that Jurik's JMA is good causal filter, better than Kalman and Volterra filters, but I don't know for sure what algorithm inside - it's black box. Does anybody know better causal filter? |
Today there exist several volatility indicies such as CBOE Volatility Index (VIX), as well as options on such indicies.
What is the best way to price an volatility index option? Is there a simple model which is both best in terms of performance as well as precision? |
There exist several volatility indices, such as the CBOE Volatility Index (VIX). There are also options on such indicies.
What is the best way to price a volatility-index option? Is there a simple model that works well in terms of performance and precession? |
How to price a volatility-index option? |
There exist several volatility indices, such as the CBOE Volatility Index (VIX). There are also options on such indicies.
What is the best way to price a volatility-index option? Is there a simple model that works well in terms of performance and precision? |
Maybe not really an answer, but a justification of your approach. It's likely that your results can be expresses as
$$
\mathsf EX_1 = 1.2\text{ and }\mathsf EX_2 = 2
$$
where $X_i$ for $i=1,2$ is a random pf of a situation in a class $i$ (we denote it $S_i$). Your method solves the following problem: given a fixe... |
I'm progressing, all too slowly, on a site that aims to show real-time numbers for options that are listed on the CBOE. Most of the instantaneous numbers are all set. Now I'm going to pay attention to some of the trends in those numbers: option price, volume, put-call ratio, open interest, and similar.
One of the se... |
Yeah, EMA; but WHICH EMA? |
Volatility and variance derivatives, such as the VIX, are priced by creating a replicating portfolio of options, weighted so as to have constant gamma for a wide range price levels. So an option on such a structure would necessarily be the sum of options on each of the individual options in the replicating portfolio. T... |
Various studies out there have demonstrated the very large and growing influence of high frequency trading (HFT) on the markets. HFT firms are clearly making a great deal of money from somewhere, and it stands to reason that they are making this money at the expense of every other participant in the market. Defenders... |
Jennifer Bender of MSCI Barra has a paper from 2007 entitled:
[To Beta or Not to Beta: A Comparison of Historical Versus Fundamental Betas for Hedging Market Risk][1]
She deals specifically and exclusively with which method is superior for hedging long-only portfolios. Not surprisingly, she finds that Barra's ap... |
Is there any research on applying state-space or dynamic linear models to forecasting equity risk premia? |
What is more appropriate: the EMA of the option price or the EMA of the underlying? |
I'm progressing, all too slowly, on a site that aims to show real-time numbers for options that are listed on the CBOE. Most of the instantaneous numbers are all set. Now I'm going to pay attention to some of the trends in those numbers: option price, volume, put-call ratio, open interest, and similar.
One of the se... |
Are there any "standard" VAR calculations run in a batch?
For example, testing a var calculation with a lag of 1 day, 2 days 5 days and 10 days over 2 years?
Same question for the percentile, 1%, 2.5%, 5% etc. |
when caluclating VAR, are there any standard lags or percentiles to run in a batch? |
Are there any "standard" VaR calculations run in a batch?
For example, testing a VaR calculation with a lag of 1,2, 5 or 10 days over 2 years?
Same question for the percentile, 1%, 2.5%, 5% etc. |
Which lags or percentiles should be run in a batch when calculating Value-at-Risk? |
Perusing the other SE network sites, particularly [Programmers][1], I often find vigorous support for various agile software development methodologies, particularly the various values known as [Extreme Programming][2] (I'm thinking of unit testing, coding standards, etc. and also SOLID principles, variable naming consi... |
What benefits are there to employing agile software development methodologies for quants? |
I am looking for dates of FOMC meetings. Anybody knows where I could find a list of historical FOMC meeting dates going back to at least 1982?
The best I could find is in tables of this article: http://www.rose-hulman.edu/~bremmer/professional/fed_target_paper.htm and of course here http://www.federalreserve.gov/mon... |
Reading up on Quantitative methods, model development and back-testing, one obvious question springs to mind:
What should one ask of in a modeltesting framework?
I know alot of people use R, C/C++ and for testing, but does one have to invent everything or are there some features one should ask for, like basic sta... |
Whats to ask for in a good modeltesting framework? |
Reading up on quantitative methods, model development, and back-testing, one obvious question springs to mind:
What should one ask of a prototyping (model testing) framework?
I know a lot of people use R, C/C++ and so on for testing, but does one have to re-invent everything or are there some features, such as ba... |
What to ask for in a good prototyping framework? |
Weak schemes, such as [Ninomiya-Victoir][1] or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the [Heston Model][2].
Can anyone familiar with [Cubature on Wiener Spaces][3] explain why (i.e. with a detailed proof or a reference) these weak schemes can be seen as a Cu... |
How to show that this weak scheme is a cubature scheme? |
**This answer is my ongoing attempt to consolidate some recent commentary on this hot topic.**
A survey commissioned by LiquidNet (written up in the [Financial Times][1]), charges that "high-frequency trading strategies are at direct odds with investors, and it’s incumbent on the institutions to protect the inform... |
If a company issues commercial paper and the bookkeeper, bank A, receives a buy order from bank B, in which bank B creates credit to buy the commercial paper, does the company has a credit in bank B or does bank B owe himself and has the asset of the commercial paper? |
Who is in debt when a bank investments in commercial paper? |
Do you think Walk Forward Analysis is a good method to estimate the predictability or edge of a trading system? Are there similar methods to know (estimate) how much alpha can capture an algo (in the future)? |
Is Walk Forward Analysis a good method to estimate the edge of a trading system? |
I am currently developing a commercial automated trading program in which users can write their own proprietary code and develop strategies, like in NinjaTrader, MetaTrader etc. Right now I am working on the order handling part, which is really important. I can not figure out how to reference the orders entered during ... |
What approaches are there to order handling in automated trading? |
From [Optimal Trading Strategies][1] :
> There are two main reasons why traders
> execute orders using a VWAP trading
> strategy. First, a VWAP strategy is
> the trading strategy that minimizes
> market impact cost. Traders executing
> orders utilizing VWAP strategies are
> interested in participating with
>... |
What is an effective way of backtesting VWAP execution? |
What position-sizing methods are used in futures trading? |
My question is pretty simple: what papers do you feel are foundational to quantitative finance? I'm compiling a personal reading list already, drawn from Wilmott forums, papers referenced in Derivatives, and other sources.
However, the body of research is immense, especially in recent years, so I'm interested in ... |
What papers have progressed the field of quantitative finance in recent years? |
My question is pretty simple: what papers do you feel are foundational to quantitative finance? I'm compiling a personal reading list already, drawn from Wilmott forums, papers referenced in Derivatives, and other sources.
However, the body of research is immense, especially in recent years, so I'm interested in ... |
What papers have progressed the field of quantitative finance in recent years (post 2000)? |
[Various][1] [studies][2] [have][3] demonstrated the very large and growing influence of high frequency trading (HFT) on the markets. HFT firms are clearly making a great deal of money from somewhere, and it stands to reason that they are making this money at the expense of every other participant in the market. Defe... |
**This answer is my ongoing attempt to consolidate some recent commentary on this hot topic.**
A good place to start for anyone thinking about this question is the Economists's [Buttonwood: Not So Fast][1], which mentions recent research by [Biais and Woolley (2011)][2] and [Dichev, Huang, and Zhou (2011)][3].
[D... |
As an agile developer and quant finance programmer, I think that unit testing is invaluable. Because you really never know if your code is doing what it is supposed to do without tests. How do you know that your code is calculating your proprietary indicators correctly?
You probably ran your new code and checked th... |
Question: if VIX is the Implied Volatility of SPX, 30 days in the future, how many days into the future does VIX vol look? +60 or +30?
Lets see if I'm on the right track:
- Premise 1: VIX is the Implied Volatility (IV) of SPX, looking +30 days into the future (actually, technically VIX is a variance swap, but for... |
If VIX is the Implied Volatility of SPX, 30 days in the future, how many days into the future does VIX vol look? |
[Grinold and Kahn (2000)][1] remains the bible for people just starting to get into quantitative portfolio management. Some readers may prefer the treatment in [Litterman (2003)][2]. Both of these, however, are thorough books covering all the foundational material.
Most of the recent work in portfolio management h... |
As an agile developer and quant finance programmer, I think that unit testing is invaluable. Because you really never know if your code is doing what it is supposed to do without tests. How do you know that your code is calculating your proprietary indicators correctly?
You probably ran your new code and checked th... |
Let's say I have one strategy that has a hedging error of:
2,
2,
-2,
-2
Let's say I have another strategy that has a hedging error of
.5,
.5,
3,
3
Would it be a better idea to grade the hedging strategies based on the sum of hedging errors (absolute value) or the sum of squares of hedging errors? Wh... |
And, in a second round, what is the origin of the "long" and "short" in characterizing the respective positions in assets? Any pointers to etymology, first occurrences, or related literature would be greatly appreciated. |
What is the origin of the words "put" and "call" that characterize derivatives? |
I really wouldn't implement time series on my own unless I had a good reason to. AQR uses pandas, almost everyone in R using zoo or xts.
I never like multiple parallel arrays, if it breaks everything is broken, plus it gets uglier as you increment data. If you are doing something in C++, why not have an array of ... |
You should look into inhomogeneous time series operators. The original reference for this work is [Zumbach and Muller (2001)][1]. An excellent introduction to the material can be found in [An Introduction to High-Frequency Finance][2], starting on page 59. I also found online a book chapter from [Modeling Financial ... |
Say you have an Exponential Moving Average being continuously updated over a time series using 1-second-long time periods. What should happen if there is no value for the next second, e.g. there were no price updates? Should the function decay in some way since there are no new values? Is there a correct or accepted wa... |
How to update an exponential moving average with missing values? |
My objective is to measure the modified-CVAR for a portfolio given it's weights and matrix of security returns. Luckily the wonderful package PerformanceAnalytics has an ES() function that does just this.
Issue I am having is that modified-CVAR takes minutes to compute when according to the [paper][1] the algorithm... |
My objective is to measure the modified-CVAR for a portfolio given it's weights and matrix of security returns. Luckily the wonderful package PerformanceAnalytics has an ES() function that does just this.
Issue I am having is that modified-CVAR takes minutes to compute when according to this [paper][1] (by the same... |
The "Component ES" section of `?ES` says:
> For the decomposition of Gaussian ES, the estimated mean and covariance matrix are needed. For the decomposition of modified ES, also estimates of the coskewness and cokurtosis matrices are needed.
The estimate of the coskewness and cokurtosis matrices are what take suc... |
My objective is to measure the modified-CVAR for a portfolio given it's weights and matrix of security returns. Luckily the wonderful package PerformanceAnalytics has an ES() function that does just this.
Issue I am having is that modified-CVAR takes minutes to compute when according to this [paper][1] (by the same... |
The "Component ES" section of `?ES` says:
> For the decomposition of Gaussian ES, the estimated mean and covariance matrix are needed. For the decomposition of modified ES, also estimates of the coskewness and cokurtosis matrices are needed.
The estimate of the coskewness and cokurtosis matrices are what take suc... |
My objective is to measure the modified-CVAR for a portfolio given it's weights and matrix of security returns. Luckily the wonderful package PerformanceAnalytics has an ES() function that does just this.
Issue I am having is that modified-CVAR takes minutes to compute when according to this [paper][1] (by the same... |
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