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How to limit the nbr of cross-gamma calculations in a delta-gamma VaR calculation? |
I think this has something to do with my question ("[Black Equivalent Volatility][1]"). I just realized that the answer might be your question:
> Knowing this information what could be the appropriate measure of computing volatility of the economic returns from my reservoir?
In Energy Markets, like oil and elect... |
It was pointed in an other question that ensemble methods can help to reduce curve fitting.
What are your experience with these and which one seems the most appropriate? If I had two forecasters that give reasonably good results. Would it be better to use both and invest half in each (diversification) or use one of t... |
What are the ensemble techniques to forecast returns? |
(1) You analytically solve a stochastic differential equation (SDE) using [Ito's lemma][1]. Your second equation (the discretized one) is how you could model _one_ path over _one_ step. To find the solution, you would model many of these paths over many steps and then take the expectation (i.e., Monte Carlo methods). T... |
Ensemble methods, or [ensemble learning](http://en.wikipedia.org/wiki/Ensemble_learning) are a class of statistical methods that, loosely speaking, operate of *many* rather than a single instance of the data. Think bootstrapping, but then combine the estimate for an aggregate. The [Wikipedia link[(http://en.wikipedia.... |
Ensemble methods, or [ensemble learning](http://en.wikipedia.org/wiki/Ensemble_learning) are a class of statistical methods that, loosely speaking, operate on *many* rather than a single instance of the data. Think bootstrapping, but then combine the estimates for an aggregate. The [Wikipedia link](http://en.wikipedia... |
This is the paper for you:<br>
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1107464
From the abstract:
> The shape of the volatility smirk has significant cross-sectional predictive power for future equity returns. Stocks exhibiting the steepest smirks in their traded options underperform stocks with the l... |
> Q: How do strategies deal with
> corporate actions?
>
> A: Very carefully.
Jokes aside, it is not trivial, and **the answer depends on what you want to do with the data**. Yahoo provides adjusted stock prices/returns for splits/mergers/dividend, as explained by Shane. The resulting time series is not very usef... |
One approach is Conditional Value at Risk (CVaR) a.k.a. Expected Shortfall (ES). It does, as you suggest, take into account the whole set of returns. However, instead of traditional VaR which asks "what is the worst 1% or 5% loss I can expect" in a given time frame, conditional VaR asks "assuming I sustain losses of at... |
What is the difference between the two?
Today in the FT I see that UBS is the second biggest 'wealth manager' after BOA whilst I was always under the impression that Blackrock was the largest asset manager.
|
This sentence in the following paper got me thinking:
"Some traders [...] trade every pattern whether proven or not, expecting
authentic ones to produce positive results, whilst the profits and losses of
fake patterns cancel each other out."<br>
http://www.seasonalcharts.com/img/ZUTEXTEN/saisonalitaet_e.pdf
Th... |
Is there something like opportunistic "superstitious" trading? |
Are there any papers about possible trading strategies you can apply when you know where a large cluster of orders is located in the order-book?
These seem to fall in the liquidity-provisioning/hunting range of strategies, is this correct?
|
What quant terms to use to search for papers about "stop-hunting" trading strategies? |
On average, how much slippage (measured in lost % return potential) is typical for an operating quant fund that trades in, say, major U.S. equities? |
How significant is slippage in a successful quant fund? |
What are some trading strategies for stocks (just stocks, no derivatives) using freely available [online data sources][1]?
[1]: http://quant.stackexchange.com/questions/141/data-sources-online |
At the risk of becoming off topic, this newbie would like to ask what are the main families of trading strategies and it would be great if you can tell from your own experience what things do not work.
I know that there are two main categories: trend following and mean reversal. But what are the main strategies in t... |
Check out the **amortization** table on your mortgage. You'll find that for the first five years, you are paying 90+% of your payment towards interest. So, if you need to sell end your loan anytime before full maturity, the majority of what you would have paid is interest, not principle. So, your **effective** inter... |
Check out the **amortization** table on your mortgage. You'll find that for the first five years, you are paying 90+% of your payment towards interest. So, if you need to sell end your loan anytime before full maturity, the majority of what you would have paid is interest, not principle. So, your **effective** inter... |
I don't quite understand how anyone would invest in VXX (asides from short-term trades)... Since the VIX term structure is generally in contango, the VXX is doomed to bleed to death.
Therefore, how exactly does this type of structure work (ETN)? Eventually, the capital raised by selling these notes will run out - w... |
I'm curious about high performance computing and consider algo/program trading as an interesting source of information about what are performant technologies that are used to trade the markets.
Is scala being used out there? Is it a viable language for a startup prop shop? Would it be considered an advantageous lang... |
What are the main categories of systematic trading strategies (e.g. momentum, mean reversion), as might be considered by an index or fund-of-fund analyst?
Are there any common sub-strategies?
|
Categories of systematic trading strategies? |
Empirics should count for something, and the (awesome) [Language Shootout](http://shootout.alioth.debian.org/) does show that [C++ still very clearly dominates Scala](http://shootout.alioth.debian.org/u64q/benchmark.php?test=all&lang=scala&lang2=gpp) in execution time and memory use -- though Scala looks better in code... |
I don't quite understand how anyone would invest in VXX (asides from short-term trades)... Since the VIX term structure is generally in contango, the VXX is doomed to bleed to death.
Therefore, how exactly does this type of structure work (ETN)? Eventually, the capital raised by selling these notes will run out - w... |
How to make sense of VXX and the people who bought it? |
Similar to [this other question about Scala][1], I'm interested in knowing whether F# is used to any measurable degree in financial circles. Have there been any successful shops using it, any research on performance and viability?
[1]: http://quant.stackexchange.com/questions/298/is-scala-used-in-trading-systems |
Is F# used in trading systems? |
We can play these language wars until pigs fly, but there are a few very basic things that most people agree on:
1. As has already been said, C++ is the standard language where performance is really important (and Java comes in second). An example of how this shows up: C++ is taught in the Wilmott quant finance ce... |
What programming languages are the most common in quantitative finance, and why are these languages used?
Note: I do not mean, what languages are used to develop the accounting system at a hedge fund: this is specifically related to aspects of valuation and trading. |
What programming languages are most commonly used in quantitative finance? |
How many trades per second are we talking about?
What kind of strategies are used in this time frame?
Can the small guy play the game? |
How 'High' is the frequency in HFT? |
A choice of **C**, **C++**, or **Java** is practically required somewhere in the stack since most data vendors only supply bindings for one of those languages. Once the data arrives, though, the trading desk can use whatever it wants.
In addition to the above three, I've seen these used in production:
- Visual B... |
I. Re: **# of trades**...
[According to WK Selph][1] (former quant turned blogger) @ [WK's High Frequency Trading How To][2]:
> To give some idea of the data volumes,
> the Nasdaq **TotalView ITCH** feed, which
> is **every event in every instrument
> traded on the Nasdaq**, can have data
> rates of **20+ gig... |
I don't know about Scala in particular, however, many financial institutions use functional programming languages. Andrei is correct in that they often are used to develop domain-specific languages (DSLs).
Some examples:
- Credit Suisse uses F# http://cufp.org/archive/2008/abstracts.html#MansellHoward (they had ... |
EDF Trading uses it (or used it): http://cufp.org/videos/scala-edf-trading-implementing-domain-specific-language-derivative-p
In general, many financial institutions use functional programming languages. Andrei is correct in that they often are used to develop domain-specific languages (DSLs).
Some examples:
... |
By hft here I mean anything with holding period less than 5-10mins...
Any empirical/anecdotal evidence of using it successfully on even higher frequencies? |
Is IB API suitable for hft? |
Are there ways to measure the risk aversion of a representative investor, based on publicly available market data? |
Some of the largest funds in the world are entirely macro-based: Soros, Brevan Howard, Bridgewater. They trade across asset classes, and seemingly with very concentrated allocations. What type of risk management framework do they adopt? |
How do macro funds manage risk and model asset returns? Do they factor models? |
Like @Pete mentioned; knowing what assumptions you are making in your testing and what impact those assumptions could have on your algorithm's results are one of the major drivers to rolling your own trading simulation engine.
The framework listed below is based on daily bar needs. Your mileage may vary if you're fo... |
Is there any published research of decent quality linking news or unstructured information to asset returns? I know that Thomson Reuters offers its Machine Readable news (MRN), so somebody must use it. But I can't find much in the public domain.
|
How do macro funds manage risk and model asset returns? Do they use factor models? |
I know that I have seen things like this in the past. Wasn't there something recently that used Twitter?
Here are a few recent papers as examples, although I will be brutally honest that I don't know if they speak to your *decent quality* requirement:
- ["Trading Strategies to Exploit Blog and News Sentiment"... |
Mean-variance optimization (MVO) is a 50+ year concept, and perhaps the first seminal idea of quantitative finance. Still, as far as I know, less than 25% of AUM in the US is quantitatively managed. While a small minority of fundamental managers use MVO, that is counterbalanced by statistical arbitrage and HF strategie... |
Does mean-variance portfolio optimization provide a real edge to those who use it? |
What is Martinglane and how it compares wit Random Walk in the context of Efficient Market Hypothesis? |
What is martingale? |
I often ear people taking about skew of this vol surface, model, etc... but it appears to me the a clear standard definition is not unanymously in place among practioners. So here is my quesiton :
Does anyone has a clear and unifying definition that can be stated in mathematical terms of what is Skew in the context ... |
What is Skew actually ? |
One starts with the Black-Scholes equation
$$\frac{\partial C}{\partial t}+\frac{1}{2}\sigma^2S^2\frac{\partial^2 C}{\partial S^2}+
rS\frac{\partial C}{\partial S}-rC=0,\qquad\qquad\qquad\qquad\qquad(1)$$
supplemented with the terminal and boundary conditions (in the case of a European call)
$$C(S,T)=\max(S-K,0),\q... |
What is a martingale and how it compares with a random walk in the context of the Efficient Market Hypothesis? |
What is a martingale? |
I often ear people taking about skew of this vol surface, model, etc... but it appears to me that a clear standard definition is not unanymously in place among practioners. So here is my quesiton :
Does anyone has a clear and unifying definition that can be stated in mathematical terms of what is Skew in the context... |
Common wisdom holds it that a moving average approach is more successful than buy-and-hold. There is quantitative evidence for that across different asset classes (see e.g. [this book][1], or [this paper][2] from the same author Mebane Faber).
My question takes a different turn: I am trying to generalize these empir... |
In the interest of having "[canonical questions][1]" on this site ... What is a Quant?
[1]: http://blog.stackoverflow.com/2011/01/the-wikipedia-of-long-tail-programming-questions/ |
The fascinating thing about **volatility pumping** (or **optimal growth portfolio**, see e.g. [here][1]) is that here volatility is not the same as risk, rather it represents opportunity. Additionally it is a generic mechanical strategy that is independent of asset classes.
**My question:**<br>
Do you know examples... |
The fascinating thing about **volatility pumping** (or **optimal growth portfolio**, see e.g. [here][1]) is that here volatility is not the same as risk, rather it represents opportunity. Additionally it is a generic mechanical strategy that is independent of asset classes.
**My question:**<br>
Do you know examples... |
- Mark Joshi describes the roles of six different species of quants (ranging from desk quant to capital quant) in his [advice][1] for wannabe quants.
- "For the past twenty years, throughout Wall Street and the City of London, in most major and many minor financial institutions, small groups of ex-physicists and app... |
I am starting to work with options data from optionmetrics. I use data frames, but it seems like xts or zoo objects are the way to go for features and speed. I can't figure out the best work-around to get 1 row per date. Should I be doing a list of xts objects with one object per optionid?
Here's my current approach... |
Is there a technique for using xts or zoo objects with options data (i.e., many entries per date) in R? |
- Mark Joshi describes the roles of six different species of quants (ranging from desk quant to capital quant) in his [advice][1] for wannabe quants.
1. Front office/desk quant
2. Model validating quant
3. Research quant
4. Quant developer
5. Statistical arbitrage quant
6. Capital quant
- "For the ... |
- Mark Joshi briefly describes the roles of six types of quants in his [advice][1] for wannabe quants:
1. Front office or desk quant
2. Model validating quant
3. Research quant
4. Quant developer
5. Statistical arbitrage quant
6. Capital quant
His classification agrees more or less with the taxo... |
I'm currently using IB's java api and getting feeds through them. However the realtime feed is updated only every 250ms and the historical feed only every second.
I'm primarily looking for ES data and other index futures and ETFs. I'm not looking at FX since that data is the most subjective since there is no exchang... |
People "on the Street" distinguish between quants and structurers. Who are the structurers? what do they do? |
What is a Structurer? |
I know the derivation of the Black-Scholes differential equation and I understand (most of) the solution of the diffusion equation. What I am missing is the transformation from the Black-Scholes differential equation to the diffusion equation (with all the conditions) and back to the original problem.
All the trans... |
Are there any standard MBS coupon stack models? |
What is a cubature scheme? |
Are special condition identifiers (e.g. AIG+) standardized? |
Just FYI the Reuters product is called NewsScope.
The selling point is that they provide a sentiment reading per news item so the user doesn't have to do any NLP.
If you have a Reuters sales rep or contact them then they can get you several research/white papers that are interesting. Here are the ones I have been... |
Given the time series for a particular stock market, what are the statistical weapons one can bring on to prove, or disprove that random walk hypothesis? |
The first chapter of the book [Econometrics of Financial Markets](http://www.amazon.com/gp/product/0691043019?ie=UTF8&tag=dirkeddel-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0691043019) by Campbell, Lo and MacKinlay discusses this very well.
|
What you are seeing is the Nasdaq Ticker Symbol conventions for CQS securities. You can essentially translate them at the below link:
http://www.nasdaqtrader.com/Trader.aspx?id=CQSSymbolConvention |
To search for "stop-hunting" I would search for stop orders and doing so on ssrn turned up the following:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920687
But if you're looking for something that addresses what's in the body of the question then I'd search for something entirely different. When one knows... |
One final thought: you want something that depends on volatility, but
not on price. In other words, if SPX goes up, your VIX replicant
wouldn't necessarily change at all.
Would an SPX option calendar spread behave something like this, since
option prices change w/ volatility, and short-term options change mo... |
I have asked myself many times about Quantization Numerical Methods, is anyone here familiar with the subject and could give a reasonable insight of what Quantization concepts are about, and what are the underlying principles that make it work ?
Regards |
What is Quantization ? |
Let's say you have a logistic regression model. Some of the factors are intrinsically categorical but some are continuous variables. Under which circumstances continous variable should be ginned into categories?
for example in retail credit middling, logistic regression is widely used. So is age variable. When is wi... |
Is variable binning good thing to do? |
Let's say you have a logistic regression model. Some of the factors are intrinsically categorical but some are continuous variables. Under which circumstances should a continuous variable be binned into categories?
For example, logistic regression is widely used in retail credit modeling, and age is an explanatory v... |
Is variable binning a good thing to do? |
A fairly naive approach to estimate the probability of drawdown / ruin is to calculate the probabilities of all the permutations of your sample returns, keeping track of those that hit your drawdown / ruin level (as I've [written about][1]). However, that assumes returns are independently distributed, which is unlikel... |
How to estimate the probability of drawdown / ruin? |
A block bootstrap makes sense to me. (If the term doesn't make sense to you, I explain it at the end.)
In order to pick the block size, I would essentially do a grid search:
* pick the largest feasible block size
* pick a smallest reasonable block size
* pick how many block sizes you feel like testing
... |
I highly recommend the Maximum Entropy Bootstrap for time series, implemented by the [meboot][1] package in R. In my work, I've stopped using both the block bootstrap and residuals bootstrap in favor of meboot, and I am pleased with the results.
Hrishikesh Vinod, the researcher behind meboot, described it in his tal... |
I came across example where a known credit risk model weakness is dealt with by making it to be more conservative (in terms of economic capital requirement) by augmenting some of the existing risk factors by increasing factor loadings?
What does that mean? Is it matter of increasing of estimated coefficients by arbi... |
What is factor loading? |
I have been thinking a lot about the following puzzle. But, could not arrive at a solution.
Can someone explain me how can you get a fair (equal probability) outcome using only an unfair coin (where unfair means that it will land head with probability p and tails 1-p where p != .5)?
Thanks in advance! |
When returns are auto-correlated, calculating a Sharpe ratio := mean(x)/sqrt(var(x)), ( where x are the returns ) is complicated, but basically solved (see, e.g. Lo (2005) ). Without the correction, the Sharpe ratio is too large, b/c auto-correlation reduces the variance of the returns.
However calculating the Cala... |
How do you correct Max Draw-Down for auto-correlation ? |
In mean-variance portfolio work, the elements of the covariance matrices are highly volatile and infused with error, so how to obtain forecasts that are usable ? A simple idea is to use a Stein-equal covar shrinkage estimator which, in practice, is easy to calculate and produces superior portfolios when evaluated on o... |
This is based on a 1995 paper by Rubinstein/Jackwerth by the above title where the authors produces a distribution of stock prices inferred from option prices. But their approach only produces a joint distribution of stock prices and whatever other contributing factors, most prominent being volatility.
My question i... |
on "recovering probability distributions from option prices" - how to subtract influence of stochastic volatility? |
I would like to be able to analyse futures prices as one continuous time series, so what kinds of methods exist for combining the prices for the various delivery dates into a single time series?
I am assuming you would just use the front date for most of the time, and then combine this into some kind of weighted com... |
Is there a standard method for getting a continuous time series from futures data? |
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