Quantitative trading strategies use quantitative signals and a set of predefined systematic rules to make trading decisions. Strategies operate within parameters based on historical analysis (backtesting) and real world market studies (forward testing). Strategies may be executed manually (by a ...

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Short volatility strategy using strangles

For a short volatility strategy using option strangles, is it better to target a fixed premium to earn? Or a fixed vega? Objective is to maximise the return/risk (sharpe) of the strategy. Any help ...
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26 views

Test for NonLinearity

I am doing a regression, returns of stocks(cross section of stock returns at a given time) against some fundamental factors. And look at the residuals to get a normalized view when trying to rank the ...
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18 views

Choosing an optimal dependent variable, regression/model fitting

When I select a certain target variable and model that with either linear regression or some other technique, say naive bayes, I hope to finally arrive at a model which has statistical significance, ...
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1answer
37 views

Relationshiop between central bank official currency rates and spot forex

Central banks publish official figures for domestic interest rates, as well as spot currency rates for a few select countries (largest trading partners). To prevent arbitrage, I "expect" that in the ...
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1answer
126 views

New ways of communicating risk

One of the scapegoats of the financial crisis was value at risk. Still communicating risks effectively to clients is a big challenge and hugely important (also to keep your job as a quant!) In this ...
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64 views

forecasting trading costs with end of day data

I am trying to create a model that forecasts trading costs (using end of day data, so no intra day data). My trading cost (also called Implemented Shortfall (IS) is defined as such for a single stock, ...
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1answer
54 views

Binomial tree vs trinomial tree in pricing options

Very new to pricing models. Is there a general guideline when to use binomial tree and when trinomial tree is preferred? As far as I know, unlike binomial tree, trinomial tree only gives a range ...
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11 views

use of recurrence quantification analysis for deterministic signal identification and classification

The recurrence quantification analysis (RQA) is a method of nonlinear data analysis which quantifies the number and duration of recurrences of a dynamical system presented by its state space ...
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45 views

Calculating Asset Returns

The question pertains to a simple phenomenon. There is gold futures listed on Exchange A and Exchange B. Exchange A and Exchange B overlap times with A and B starting 8 hours later and A and B ...
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37 views

How to make the algo decide over a optimal selling point?

Please don't bully if its a basic question.Kinda new to the topic hence experimenting. Problems to construct trading algorithm.For the example I assume I am getting a buy signal from the DMI/ADX ...
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1answer
80 views

How to account for correlation between strategies when they are added linearly?

There are n strategies which are going to be combined linearly. Using a pre-exisiting model I get a set of n weights which will be used to combine the strategies. But the model does not take ...
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71 views

Method to combine trading signals to achieve higher sharpe

There are a few thread with the question of methods to combine different trading signals/strategies. But is there any method that can ensure that by combining two signals, we can achieve a better ...
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55 views

Straddle neutral strategy

What does it mean to implement a delta-neutral strategy for straddle ? A straddle consists in buying a call and a put simultaneously, at the same date, on same underlying, with same maturity and ...
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1answer
74 views

What does NPV ASSENTED after stock name mean?

For a project, I have to quantitatively implement a strategy for value investing in EURO STOXX 50. I pulled the data from Datastream. When I was checking some data plots for dividend yields and total ...
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3answers
156 views

Research methodology of systematic strategies

Can someone please share your research methodology of systematic trading strategies? I feel like I am always using the a same data driven procedures over different underlyings and would like to get ...
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2answers
170 views

Who holds stock overnight?

I have heard from several different sources, e.g. professors, books and traders, that daytraders and quants avoid holding positions overnight and during holidays and weekends. Instead, they sell their ...
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1answer
397 views

Learn backtesting using MATLAB

What are some good ressources (books, articles, ...) to learn backtesting of investment strategies using MATLAB ? It can be strategies related to fixed-income, equities, derivatives, ... whatever. ...
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1answer
152 views

Technical Analysis in FX: literature on effective methods

I am trying to use technical analysis method (Kagi and Renko method in particular) to analyse my high frequency data. I applied those methods over 1 year, 2 years and 5 years high frequency data. I ...
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2answers
228 views

Arbitrage and dominant strategies

If there is no arbitrage there is no dominant trading strategy, but there may be arbitrage opportunities even if there are no dominant trading strategies. Could you explain this statement and bring ...
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21 views

Correct term for position accumulation relative to price?

I've been looking at various accumulation algos and it appears that the greater majority are predicated on building a position largely relative to a time component or market volume for obvious ...
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2answers
129 views

what volatility do we calculate using GARCH model

what volatility do we calculate using GARCH model, Historical vol or Implied vol or Future Vol or Actual vol.
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1answer
165 views

Various ways to choose bonds for a butterfly strategy?

What are the various ways to choose bonds for a butterfly strategy? For eg., I already know the most common one i.e., choosing short and long term for the wings (barbell) and the medium term for the ...
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2answers
104 views

Automatic trading strategies - what are benchmarks for PL on serious backtesting?

There are plenty books and sites which offer automatic trading strategies (robots) and claim they are very profitable. On the other hand many people do not believe in such things, saying that: if ...
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162 views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
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1answer
630 views

What are the textbooks used to teach Quantitative Trading at universities?

For example, Stanford has a class on quantitative trading. But i am not able to determine what are the textbook(s) used in this course. The same also applies for similar courses at Stony Brook, ...
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59 views

seasonality and generalized additive model

I am reading a report which talks about seasonality. There is a chart showing the average returns for each month of the year. In the chart it appears the last 3 months of the year tend to be negative. ...
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1answer
132 views

quadratic programming portfolio optimisation

I am using MATLAB to do an optimisation. The QP minimisation problem is set up in the standard form shown below. The optimisation is used to calculate the weights (x vector in the equation below) of a ...
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1answer
72 views

optimisation problem with linear constraint

I have an optimisation problem. I wish to maximise a function subject to a constraint. It is the constraint that is causing me problems. I am using an addin in Matlab which does the optimisation ...
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1answer
214 views

Analog - Pattern Recognition model using KNN

I'm building a pattern recognition model for my master thesis. The idea is to build a framework with some Macro variables (long/short term rates; rates differential; equity; fx; vix) in order to find ...
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2answers
234 views

How to select optimal betting strategy from backtest?

I have written a model for predicting the winner of UFC fights. My model calculates the probability of each fighter to win a given match. I have back tested the model and found it to be very ...
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1answer
161 views

Bootstrapping Sharpe Ratios

A similar question to this was asked here: How do i test the significance of Sharpe ratio of a strategy using bootstrap I have bootstrapped the original time series (using block bootstrapping) and ...
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46 views

Fixed Income Swap Sharpe Ratio Calculation

I have a Fixed Income based strategy based on swaps. Q1.) Given that swaps are based on a "notional" principal and no actual exchange of principal's takes place, is it fair to assume a funding cost ...
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77 views

conservative approach payoff table

With the conservative approach, we choose the decision which maximises minimum payoff. I was wondering which decision is chosen if 2 decisions have equal minimum payoff (which is the maximum)? ...
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4answers
257 views

Efficient Markets Paradox

Basically all Quant Finance theory is build on No-Arbitrage presumption and Efficient Markets Hypothesis. The known Grossman-Stiglitz Paradox says: if one can't make money from trading, one wouldn't ...
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5answers
1k views

Would this extremely simple strategy make money?

Find a diversified set of financial instruments by whatever method you like. Every day, buy each instrument at the open price. Historically, the open price is almost never the high. Sell immediately ...
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1answer
204 views

Trading over a Ornstein/AR process

For a OU/AR(1) process is there anyway to analytically calculated most probable period of time the process is likely to diverge from the average, before turning to converge. Basically I am looking ...
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2answers
428 views

Backtesting with Simulated Historical Data?

The trading strategies that are going to backtest well are the ones that pick the winners from the past. For example, if a trading strategy simply bought apple stock it would backtest extremely well. ...
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161 views

Models for volatility estimation of high frequency data?

I have read on several news articles and research papers, "Contrary to popular belief, high frequency trading reduces volatility in stock markets rather than exacerbates it". Do you know the models ...
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1answer
271 views

How to find optimal look back in quant trading models

I'm in the process of building a quantitative trading model, I want to improve on the way in which I decide upon a look back length for the indicators. I understand the different pros/cons for very ...
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69 views

robust regions in grid search

I have a strategy f that takes parameters x,y (for x,y taking values in integer ranges). I get two grids (of returns and volatility values) from computing f(xi,yi) for integer ranges x1 <= xi <= ...
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2answers
350 views

The Definition(s) of Momentum

I am currently studying the Momentum strategy and its differences in results (returns) when we change the formula describing momentum. There are indeed no accurate formulas for implementing the ...
5
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1answer
857 views

Regime-Switching Model for detecting market shifts

I'm always wondering whether anyone has utilized regime-switching models successfully in forecasting or trading. Academia has long discussed this topic in-depth, such as using Regime Switching ...
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2answers
273 views

How to combine trading signals to achieve higher capital efficiency?

I trade use a completely automated approach where all signals are generated by proprietary trading strategies. However, recently I encountered an challenging problem: Imagine we have 3 Strategies ...
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159 views

trading strategy outperforms passive strategy in absolute terms, but in returns vice versa. how could this be?

Background: I want to compare two trading strategies in term of profitability. The red one is an active trading strategy, which involves many entry and exit to a specific market. The blue one is a ...
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2answers
356 views

Non-negative matrix factorization for factor analysis of stocks

I stumbled over the term Non-negative matrix factorization in presentations such as Application of Machine Learning to Finance and this Big Data in Asset Management. The basic idea is to decompose a ...
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3answers
177 views

Capital Allocation for Portfolio of Multi-Strategy and Multi-Instrument

I would like to know if there is a way (or theory) to manage a multi-strategy, multi-instruments portfolio that would calculate the optimal weight to allocate capital for each combination of strategy ...
2
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1answer
348 views

What features does q /KDB provide for HFT use?

It appears q/KDB is being using for Time series analysis for HFT. What are some of the advantages of using ...
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1answer
320 views

Stochastic Calculus in Quantitative analysis

I am an aspiring quant that would like to get a head start learning stochastic calculus, which books FROM EXPERIENCE are the most reader friendly?
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39 views

Significance of Data

The following is a result I get from a pair trading model. I am trying to figure out the significance of the below but failing. Can someone help me out i.e. a resource or possibly an explanation on ...
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1answer
213 views

Given future price probability distribution, what is a strategy that maximizes return?

Say I know the price probability distribution, e.g., lognormal(p,s), of a stock X at a future time ...