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Take the classic GBM (geometric Brownian motion) model for equities as an example: ds = mu * S * dt + sigma * S * dW. It is the basis for the classic Black-Scholes formula. The model says volatility is constant, which is apparently not true considering the volatility smile. However, many practitioners use...
Is it possible to demonstrate that one pricing model is better than another?
A simple top-down shortcut calculation : 1. Set annualized alpha = compounded alpha = 1 + a1 + a2 + a1*a2 + ... = $\Pi$ (1 + $\alpha_t$) 2. Set annualized return from factors = compounded factor return = $\Pi$ (1 + $factorReturn_t$) 3. Interaction Term contribution is then = Compounded Security Return - Compounded...
Are there any online tools (optionally with developer API, to spare me the scraping) that given an existing portfolio, calculate how well a new candidate position would score to increase combined diversification/decrease risk?** Or perhaps Linux tools that given parameters, can look up historical prices and what...
Background: I'm stuck with a deadbeat life insurance policy holder (Western Reserve Life) who refuses to give customers historical pricing data of their fund selections under the pretext of "market timing". Their most recent performance metrics are uselessly out of date, typically from last quarter: "Average Returns as...
Background: I'm stuck with a deadbeat life insurance policy holder (Western Reserve Life) who refuses to give customers historical pricing data of their fund selections under the pretext of "market timing". Their most recent performance metrics are uselessly out of date, typically from last quarter: "Average Returns as...
Using quantitative finances techniques on limited information, how might one go about finding similar(highly correlated) assets whose public information _is_ available? All they show are yesterday's Daily Unit Values alongside up/down arrows, and if you didn't log in last week to save the prices from back then, too ba...
Using quantitative finances techniques on limited information, how might one go about finding similar(highly correlated) assets whose public information _is_ available? The only data offered on a list of funds are yesterday's Daily Unit Values alongside up/down arrows, and last quarter's average returns %. No historic...
I read the paper of ledoit and Wolf [http://www.ledoit.net/jef_2008pdf.pdf][1] which propose a method to compare two sharp ratio and the paper of White [http://www.ssc.wisc.edu/~bhansen/718/White2000.pdf][2] which propose a method to compare n trading rules. My question is can we use the method of White to compare t...
Can we use White's reality check to compare two sharp ratio?
I read a paper from [Ledoit and Wolf][1] that proposes a method to compare two Sharpe ratios and a paper from [White][2] that proposes a method to compare $n$ trading rules. My question is: Can we use White's method to compare two Sharpe ratios? I prefer this method because it's computationally simpler. [1]: ...
Can we use White's reality check to compare two Sharpe ratios?
Are there any online tools (optionally with developer API, to spare me the scraping) that given an existing portfolio, calculate how well a new candidate position would score to increase combined diversification/decrease risk?** Or perhaps Linux tools that given parameters, can look up historical prices and whatev...
Has anyone here dealt with faster data structures, databases, or algorithms for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, and eventually into the backoffice or corporate RDBMS. How are the HFT folks doing this? ...
What techniques and systems are typically used for high-frequency accounting?
Has anyone here dealt with faster data structures, databases, or algorithms for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, and eventually into the backoffice or corporate RDBMS. How are the HFT folks doing this th...
Has anyone here dealt with faster data structures, databases, or algorithms for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, and eventually into the backoffice or corporate RDBMS. How are the HFT folks doing this th...
Has anyone here dealt with faster data structures, databases, or algorithms for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, and eventually into the backoffice or corporate RDBMS. Anyone have a favorite paper dealing ...
Has anyone here dealt with faster data structures, databases, or algorithms for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, and eventually into some backoffice or corporate RDBMS. Anyone have a favorite paper dealing...
Has anyone here dealt with faster data structures, databases, or algorithms for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits. Anyone have a favorite paper dealing with this subject? I know I'm missing something, but m...
What techniques and data structures are typically used for high-frequency accounting?
Lets say I've developed a strategi that alwais outperformes the S&P-500, let call it "magic strategi". Now I should be golden. All I need is to alwais have the S&P shorted with the same amount as I have in the magic strategy, and my outcome is bound to be positive. But how much better does my strategi have to be...
What does leverage cost?
Let's say I've developed a strateg7 that always outperforms the S&P-500, let call it the "magic strategy". Now I should be golden. All I need is to always have the S&P shorted with the same amount as I have in the magic strategy, and my outcome is bound to be positive. But how much better does my strategy have t...
Let's say I've developed a strategy that always outperforms the S&P-500, let call it the "magic strategy". Now I should be golden. All I need is to always have the S&P shorted with the same amount as I have in the magic strategy, and my outcome is bound to be positive. But how much better does my strategy have t...
How do I check whether the Option-adjust spread value I have retrieved from external calc utility is correct? Can you please tell me the steps to verify this?
How do I check whether OAS value is correct?
So as opposed to the normal structure using a reference temperature and HDD/CDD, I'm looking at pricing a call option with a structure similar to the following: Daily option on maximum daily temperature over a particular threshold where said temperature maps to an incrementally increasing quantity to use when calcul...
So as opposed to the normal structure using a reference temperature and HDD/CDD, I'm looking at pricing a call option with a structure similar to the following: Daily option on maximum daily temperature over a particular threshold where said temperature maps to an incrementally increasing quantity to use when calcul...
So as opposed to the normal structure using a reference temperature and HDD/CDD, I'm looking at pricing a call option with a structure similar to the following: Daily option on maximum daily temperature over a particular threshold where said temperature maps to an incrementally increasing quantity to use when calcul...
Does anyone know of any prior art for non-SQL data structures for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, as early as possible, preferably in or directly adjacent to a limit-order book. An answer to this question...
Non-SQL methods for high-frequency accounting?
Does anyone know of any prior art for non-SQL data structures for accounting? I'm thinking specifically of the problem of getting individual trade data into proper transactions, with balanced debits and credits, as early as possible, preferably in or directly adjacent to a limit-order book. An answer to this question...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
WARNING ***** I'd seriously think carefully while pricing this especially using temperature as the underlying, becasue you need to nail a value to temperature. How much does 1 degree cost? Weather markets are seriously incomplete. What location / index would you use as the reference for temperature? By the way ...
Looking at euro dollar IR option market data coming down from CME I can see a whole host of options where the strike is > 100 bips. My understanding in this case is that puts will always be in the money, and calls always out so I was wondering why these may exist? Any thoughts or facts of the subject would be app...
Looking at Eurodollar IR options market data coming down from CME, I can see a whole host of options where the strike is > 100 bps. My understanding in this case is that puts will always be in the money and calls always out, so I was wondering why these may exist? Any thoughts or facts of the subject would be app...
I am aware of how to do mean-variance or minimum-variance portfolio optimization with constraints like weights must add to 1.0, no short shell, max weight in any ticker using basic quadratic programming techniques. However I am stumped by the following: My universerse of tickers consists of ETF's. Say I want constra...
I am aware of how to do mean-variance or minimum-variance portfolio optimization with constraints like - weights must add to 1.0 - no short sells - max weight in any ticker using basic quadratic programming techniques. However I am stumped by the following: My universe of tickers consists of ETFs. Say I w...
If I send a market order to an exchange with quantity greater than the quantity of the inside quote at this exchange, and if another exchange has quantity to fill the residual portion at NBBO, will my order by routed to that exchange? Will I be charged a routing fee? How does the exchange decide where to route the orde...
I have a time series of data that is 300 days long. I compute PCA factor loadings on a moving window of 30 days. There are 7 stocks in the universe. Thus factors F1 through F7 are calculated on each PCA calculation. However, the signs on factor loadings change ? This causes problems when interpreting factor price ti...
I have a time series of data that is 300 days long. I compute PCA factor loadings on a moving window of 30 days. There are 7 stocks in the universe. Thus factors F1 through F7 are calculated on each PCA calculation. However, the signs on factor loadings change. This causes problems when interpreting factor price tim...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
I typically do a JB (Jarque Bera) test and DW (Durbin Watson) tests for check for normality given skewness, kurtosis and autocorrelation of the data. However this requires a CHI distribution table lookup and some calculation. I was wondering if there is a simple less accurate test that I can do on the data to check if ...
If I have a lot of data points and number of different dependent variables, can I use central limit theorem to assume data is multivariate normal and compute my VAR? Is this the appropriate use of central limit theorem for VAR calculation?
Both the Black-Scholes PDE and the Mass/Material Balance PDE have similar mathematical form of the PDE which is evident from the fact that on change of variables from Black-Scholes PDE we derive the heat equation (a specific form of Mass Balance PDE) in order to find analytical solution to the Black-Scholes PDE. I ...
Can we explain physical similarities between Black Scholes PDE and the Mass Balance PDE (e.g. Advection-Diffusion equation)?
We are in the process of selecting the data center for deploying our high frequency strategies. Does anyone has some questionnaire that can be used to figure out that what type of infrastructure (hardware, processor, cores, ram, network interface card, switch, OS, etc. etc.) will be the best for our strategies? I kno...
How to choose a data center for deploying high frequency trading strategies?
We are in the process of selecting the data center for deploying our high frequency strategies. Does anyone has some questionnaire that can be used to figure out that what type of infrastructure (hardware, processor, cores, ram, network interface card, switch, OS, etc. etc.) will be the best for our strategies? I kno...
After running a minimum variance portfolio optimization on a universe of ETF's I see the resulting portfolios tend to be composed of bond ETF or related treasuries/government ETFs. I suppose that makes sense because bonds have had lower variance in the periods I'm looking at, however I'm wondering what is the best w...
On the surface, bid-ask spreads are far more narrow than even several years ago. However, during periods of financial stress liquidity seems to vanish. Also, the increasing amount of fragmentation (i.e. new exchanges, crossing markets / dark pools, etc.) is moving markets away from deep central pools of liquidity. ...
What is the impact of high-frequency trading on market depth, liquidity, and volatility?
On the surface, bid-ask spreads are far more narrow than even several years ago. However, during periods of financial stress liquidity seems to vanish. Also, the increasing amount of fragmentation (i.e. new exchanges, crossing markets / dark pools, etc.) is moving markets away from deep central pools of liquidity. ...
Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual trade data into proper transactions, with balanced debits and credits. In my own case, I'll be doing this in or directly...
Let's say I wanted to create my own financial market where people could buy with real money shares in a real physical product such as, for example, a rock band. If the value of the rock band goes up, so do the investors shares, if the value of the rock band goes down, etc. Is this feasible? Any links to resources on...
A friend of mine told me that their firm is using [Extreme Value Theory][1] (EVT) to compute value of the [Excpected Shortfall][2] 99% of a portfolio for their asset allocation process. To do so, they try to fit the parameters of the [Generalized Pareto Distribution][3] using the historical sample of their portfolio, a...
How many data points are required to perform a fitting of GPD?
Let's say I wanted to create my own financial market where people could buy with real money shares in a real physical product such as, for example, a rock band. If the value of the rock band goes up, so do the investors shares, if the value of the rock band goes down, etc. Is this feasible? Any links to resources on...
A friend of mine told me that their firm is using [Extreme Value Theory][1] (EVT) to compute value of the [Expected Shortfall][2] 99% of a portfolio for their asset allocation process. To do so, they try to fit the parameters of the [Generalized Pareto Distribution][3] using the historical sample of their portfolio, an...
Let's say I wanted to create my own financial market where people could buy with real money shares in a real physical product such as, for example, a rock band. If the value of the rock band goes up, so do the investors shares, if the value of the rock band goes down, etc. Is this feasible? Any links to resources on...
I'm analyzing trades from several participants in a trading competition, and I was wondering - are there known mechanisms for analysis and inference of the logic in a set of trades done by one participant? For example, I know that some participants would adopt the strategy of hedging an option-on-future O with the unde...
I have a follow-on question to questions that appeared here and was not sure if the right way was to ask in the comments or post a new question. My question is: how can I optimize a portfolio to suit *both* minimum variance as well as max diversification. Essentially the minimum variance portfolio that is most diver...
I have a follow-on question to questions that appeared here and was not sure if the right way was to ask in the comments or post a new question. My question is: how can I optimize a portfolio to suit *both* minimum variance as well as max diversification. Essentially the minimum variance portfolio that is most diver...
Some feedback: We are developing pricing engines for the calculation of market risk in a Solvency II solution, including bonds, callable bonds, cds, options, futures and so on. Are there any canonical test cases which the engines have to solve?
Short intro: We are developing pricing engines for the calculation of market risk in a Solvency II solution, including bonds, callable bonds, cds, options, futures and so on. Are there any canonical test cases which the engines have to solve?
The "[january effect][1]" is one of the most widely recognized market anomalies. In a nutshell, it refers to the empirical observation that January appears to have systematically higher returns than other months of the year. What are the most common rationales for this anomaly? [1]: http://en.wikipedia.org/wik...
what are the most common explanations of the January effect?
Hmmm ... my knowledge is limited to MPT ( http://en.wikipedia.org/wiki/Modern_portfolio_theory ) and according to it, this isn't really a problem or the problem isn't formulated correctly, because it is mathematically provable that more diversified a portfolio is, lower is the variance (or risk, have a look at this lec...
Besides of the [VIX][1] there is another vol datum publicly available for the S&P 500: the [SKEW][2]. Do you know a procedure with which one can extrapolate other implied vols of the S&P 500 smile with these data (or with other publicly available [vol data][3])? [1]: http://finance.yahoo.com/q/hp?s=%5EVIX%20H...
If the distribution of returns in symmetric, why not use a coin toss to decide a buy or a sell, and then calculate the average velocity of the market (ATR - in technical analysis) and place a stop loss 0.5 ATR away from current price and a take profit 2 ATR away from current price? I tried it in FOREX and it doesn't...
If the distribution of returns in symmetric, why not use a coin toss, small risk & high reward?
could this strategy be applied for real trading ? i mean, whatever a trade makes or loses money, trading incurs transaction-costs. thus, you cannot stand on that (perfect) bell-shaped distribution to trade profitably. does that make sense?
could this strategy be applied for real trading ? i mean, whatever a trade makes or loses money, trading incurs transaction-costs. thus, you cannot stand on that (perfect) bell-shaped distribution to trade profitably with any certainty.
If the distribution of returns is symmetric then why not 1. use a coin toss to decide whether to buy or sell 2. Calculate the average velocity of the market (ATR - in technical analysis) 3. Place a stop loss on 0.5 ATR away from current price and take a profit 2 ATR away from the current price? I tried it i...
I have historical trade data for every trade on a forex exchange, whcih includes the following data: - Time the trade was made - Amount, in currency A - Price, in currency B I have also used this to organize the data into candlestick data for periods, which includes: - Volume in currency A - Volume in ...
A company's earnings release date significantly affects weekly or monthly option prices/implied volatility. For companies that typically release earnings on the cusp of monthly options expiration, either a few days before expiration or a few days after, it would appear the day that the earnings release date is announ...
Here's an example by Marco Avellenada from NYU titled "[Statistical Arbitrage in the U.S. Equities Market][1]". The idea of this paper involves capturing mean reversion in the residual returns of a security after removing the principle components of return. As another example, here is some research by Mark Kritzman...
What are some research articles on using principle components to generate alpha?
I had naively thought that kdb is the *de facto* data-infrastructure in the street, until recently i talked with a few small hedge funds/prop shops. It seems that they all have their own data management solution, based on open source projects. For instance, it seems that Cit*l uses extensively python-based solution...
Is there any thing out there as a substitute for KDB?
Attilio Meucci does some very interesting things with PCA. See e.g. his paper on managing diversification which makes heavy use of it (and explains it very intuitively along the way): [Managing Diversification by Attilio Meucci][1] [1]: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1358533
I believe that most of us will agree that being able to compute values is only part of our job, as we would also like to be able to display them nicely in order to better understand or help co-workers/clients understand some concepts or results. We usually try to do this using charts, most of the time from MATLAB an...
Is there a charting API which allows to replicate Bloomberg chart tool features?
Here's an example by Marco Avellenada from NYU titled "[Statistical Arbitrage in the U.S. Equities Market][1]". The idea of this paper involves capturing mean reversion in the residual returns of a security after removing the principle components of return. As another example, here is some research by Mark Kritzman...
in june 2009, GM has filed for bankruptcy. trading has moved from NYSE to OTC pink sheets, and the symbol changed to GMGMQ and later to MTLQQ. in november 2010 a new GM symbol started trading on NYSE. i am looking for the regulations regarding stock symbol reuse in the US. is there a minimum time that the symbol has to...
A company's earnings release date significantly affects weekly or monthly option prices/implied volatility. For companies that typically release earnings on the cusp of monthly options expiration, either a few days before expiration or a few days after, it would appear the day that the earnings release date is announ...
I have been trading for decades, and I have a solid knowledge of technical analysis but also VB as professional programmer. I would like to start learning C++ from scratch, then specialised in C++ for quant. trading Any hint about where to start from please ? - Learning C++ just enough to move to quant trading...
C++ training from scratch to quantitative trading?
I have been trading for decades, and I have a solid knowledge of technical analysis but also VB as professional programmer. I would like to start learning C++ from scratch, then specialised in C++ for quant. trading Any hint about where to start from please ? - Learning C++ just enough to move to quant trading...
Let's say I am optimizing a portfolio subject to some weight constraints. I'd like to identify the set of corner portfolios so that I can linearly interpolate the entire efficient frontier. A corner portfolio defines a segment on the minimum-variance frontier within which i) portfolios hold identical assets, and ii)...
Are there any tools or research for identifying corner portfolios?
Let's say I am performing mean-variance optimization subject to some weight constraints. I'd like to identify the set of corner portfolios so that I can linearly interpolate the entire efficient frontier. A corner portfolio defines a segment on the minimum-variance frontier within which i) portfolios hold identical ...