9
votes
3answers
3k views

How to calculate future distribution of price using volatility?

I want to create a lognormal distribution of future stock prices. Using a monte carlo simulation I came up with the standard deviation as being $\sqrt{(days/252)}$ $*volatility*mean*$ $\log(mean)$. ...
8
votes
3answers
797 views

How does Cornish-Fisher VaR (aka modified VaR) scale with time?

I am thinking about the time-scaling of Cornish-Fisher VaR (see e.g. page 130 here for the formula). It involves the skewness and the excess-kurtosis of returns. The formula is clear and well ...
4
votes
2answers
410 views

Average correlation of index/portfolio

We try to analyze the average correlation of a portfolio as it can be found here in section 2 b), the same formula which is also used by the CBOE to calculate implied correlations: $$ \rho_{av(2)} = ...
52
votes
12answers
10k views

Innovative ways of visualizing financial data

Finance is drowning in a deluge of data. Humans are not very good at comprehending large amounts of data. One way out may be visualization. Traditional ways of visualizing patterns, complexities and ...
21
votes
3answers
2k views

How do you mix quantitative asset allocation with qualitative views?

Usually in asset allocation you have a quantitative approach (which can be from example mean-variance), but you (or you and your firm) also have a more qualitative approach given market-conditions, ...
17
votes
8answers
7k views

How are cryptography and speech recognition technology applied to forecasting financial markets?

One of the answers to my previous question regarding the strategy of Renaissance Technologies, there was a reference to The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly ...
26
votes
12answers
11k views

Why does the minimum variance portfolio provide good returns?

I've been a researching minimum variance portfolios (from this link) and find that by building MVPs adding constraints on portfolio weights and a few other tweaks to the methods outlined I get ...
23
votes
5answers
3k views

Random matrix theory (RMT) in finance

The new kid on the block in finance seems to be random matrix theory. Although RMT as a theory is not so new (about 50 years) and was first used in quantum mechanics it being used in finance is a ...
19
votes
5answers
15k views

What are some useful approximations to the Black-Scholes formula?

Let the Black-Scholes formula be defined as the function $f(S, X, T, r, v)$. I'm curious about functions that are computationally simpler than the Black-Scholes that yields results that approximate ...
10
votes
8answers
2k views

Has spectrum analysis ever been used successfully to analyse historical price data?

Spectrum analysis is often used to analyse waveforms. A common configuration, for example, is to create a graph where X is time, Y is frequency, and the brightness of each position represents ...
19
votes
1answer
2k views

How do different methods and techniques used in pairs trading compare?

I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score. I am wondering if anyone has ...
16
votes
4answers
9k views

Usage of NoSQL storage in Finance

I am wondering if anyone has used NoSQL (mongodb, cassandra, etc.) to store and analyze data. I tried searching the web but was not able to see if the financial firms had gotten in to using nosql ...
15
votes
7answers
5k views

What tools exist for order book analysis and visualization?

What tools exist for order book analysis and visualization? In particular, if one wanted to examine a limit order book and understand how it changes throughout the day where would you turn for ...
14
votes
7answers
9k views

Switching from Matlab to Python for Quant Trading and Research

Has anybody else out there made this switch? I'm considering it right now. What were the negatives and positives of the switch?
19
votes
5answers
3k views

Trading a synthetic replication of the VIX index

One cannot directly buy and sell the VIX index. Theoretically, however, one could approximate the index by purchasing an at-the-money straddle on the SP500, then delta-hedging the straddle. Does ...
14
votes
4answers
5k views

Implementing data-structures in a Limit order book

I'm working on implementing a 'LOB' and I'm being very careful about choosing my data-structures so as to maximize performance. Using F# as an example, I need to consider a List versus Array for ...
26
votes
8answers
2k views

Are there any new Option pricing models?

Back in the mid 90's I used the Black-Scholes Model and the Cox-Ross-Rubenstein (Binomial) Model's to price Options. That was nearly 15 years ago and I was wondering if there are any new models being ...
15
votes
2answers
1k views

From a high frequency point of view, with a price prediction and assuming infinite leverage, how do you determine optimal trade size?

I have read about something like Kelly criterion for long term expectation maximization assuming a fixed starting bankroll. But if one can assume unlimited leverage, and one has a signal for a price ...
9
votes
1answer
879 views

academic papers about market making

I am looking for academic articles which model the p&L of market makers. I have read the Ho-Stoll (1984) article. Is there any recent article on this subject?
14
votes
6answers
9k views

Is Scala used in trading systems

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 ...
11
votes
3answers
3k views

How do I find the most diversified portfolio, or least correlated subset, of stocks?

I have a trading system that chooses top 10 stocks in Nasdaq 100 ranked on relative strength and some other factors. However, I'd like to take positions in only 5 of these 10 stocks based on how ...
11
votes
4answers
2k views

What books should any quantitative portfolio manager or risk manager have as reference? [closed]

I'm interested to know what are the critical reference texts you rely on for portfolio or risk management? I mean those texts that you come back to because they are chock full of insight and know-how. ...
18
votes
3answers
1k views

Tools in R for estimating time-varying copulas?

Are there libraries in R for estimating time-varying joint distributions via copulas? Hedibert Lopes has an excellent paper on the topic here. I know there is an existing packaged called copula but ...
16
votes
4answers
2k views

How are risk management practices applied to ML/AI-based automated trading systems

A potential issue with automated trading systems, that are based on Machine Learning (ML) and/or Artificial Intelligence (AI), is the difficulty of assessing the risk of a trade. An ML/AI algorithm ...
12
votes
3answers
4k views

Free intra-day equity data source

Are there any free data source for historical US equity data? Yahoo finance has daily prices but I'm looking for something more granular and goes back 2 or more years (doesn't have to be close to tick ...
11
votes
3answers
4k views

Is there an all Java options-pricing library (preferably open source) besides jquantlib?

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 seems to be down. I'd prefer ...
16
votes
2answers
2k views

Do you have historical tick data you want to donate?

Do you have historical market/pricing ticket data that you would like to donate to the Open Source Trader project (OST)?? Please: upload your files! Once we gather some data, we'll do our best to ...
13
votes
13answers
7k views

Is “eoddata” a good data source?

Not sure if this is a relevant question for site, but I am looking to move to www.eoddata.com as my data source. If anyone has used it, can you tell me how the data quality is ? I am currently ...
10
votes
2answers
2k views

Is there a standard model for market impact?

Is there a standard model for market impact? I am interested in the case of high-volume equities sold in the US, during market hours, but would be interested in any pointers.
9
votes
1answer
600 views

One dimensional analog of cleansing a correlation matrix via random matrix theory

The general idea of cleansing a correlation matrix via random matrix theory is to compare its eigenvalues to that of a random one to see which parts of it are beyond normal randomness. These are then ...
8
votes
1answer
2k views

Multilayer Perceptron (Neural Network) for Time Series Prediction

I have it in mind to build a Multilayer Perceptron for predicting financial time series. I understand the algorithm concepts (linear combiner, activation function, etc). But while trying to build the ...
8
votes
1answer
846 views

Forward Adjusting Stock Prices?

How should one correctly forward adjust historical prices given a time series of Open, High, Low, Close, Return? Suppose that the data series is given below ('1' is the oldest interval; '5' is the ...
7
votes
1answer
477 views

Price functions based on order book events

Assume some equity traded on a given exchange based on an electronic limit open-order book $B$ that makes sequential updates as a function of time $t$. What are "natural" or common price functions $P: ...
6
votes
3answers
7k views

Are public historical time series available for ratings of sovereign debt?

The nice list of free online data sources Data sources online does not mention any data from ratings agencies. Are historical time series available for sovereign credit ratings (other than as ...
6
votes
5answers
1k views

What blogs or articles online should I read to get started with quantitative finance? [closed]

I want to start learning quantitative finance, what articles or blogs should I look at to start? Also see the Related Question on Quantitative Finance Books
11
votes
5answers
2k views

How to interpolate gaps in a time series using closely related time series?

I am trying to construct a daily time series of prices and returns for some large universe of securities. However, all I have available are a monthly time series of the prices/returns (as well as ...
11
votes
3answers
1k views

How do strategies deal with corporate actions?

There are many corporate actions that will affect the stock price, like dividend, stock split and rights. Given a large series of historical price data, how do we adjust the data to filter out the ...
9
votes
1answer
1k views

Is there a popular curve fitting formula of options skew vs strike price or vs Delta?

I was trying to build a options trading/optimization system. But it often gets more inaccurate as it scans through the far from ATM options because, you know, options skews. That is because I did ...
8
votes
2answers
2k views

Equity Risk Model Using PCA

I'm trying to build a simple risk model for stocks using PCA. I've noticed that when my dimensions are larger than the number of observations (for example 1000 stocks but only 250 days of returns), ...
14
votes
1answer
6k views

How to interpret the eigenmatrix from a Johansen cointegration test?

I ran a Johansen cointegration test on 3 instruments, A B and C. The results that I got are: R<=x | Test Stat | 90% | 95% | 99% r=0 --> 36.7 | 18.9 | 21.1 | 25.8 r=1 --> ...
12
votes
2answers
2k views

How to update an exponential moving average with missing values?

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 ...
11
votes
2answers
7k views

Cross Currency Swap Pricing in nowadays environment

Multicurve setting has now become the new paradigm for vanilla swap valuation. For the record I give here (without getting into too much details) the methodoloy for pricing Euribor3M swaps in this ...
11
votes
2answers
891 views

When should you build your own equity risk model?

Commercial risk models (e.g., Barra, Axioma, Barclays, Northfield) have evolved to a very high level of sophistication. However, all of these models attempt to solve a very broad set of problems. ...
12
votes
4answers
2k views

Are two identical time series cointegrated?

I did cointegration test on two identical time series, and the result shows that they are not cointegrated, but intuitively, I think they are. Can anyone share some thoughts on this? Thanks!
12
votes
6answers
2k views

Why does the VIX index have *any* correlation to the market?

It appears that the log 'returns' of the VIX index have a (negative) correlation to the log 'returns' of e.g. the S&P 500 index. The r-squared is on the order of 0.7. I thought VIX was supposed to ...
11
votes
1answer
878 views

So many volatility models. Any comparisons of them?

Are there any papers that make an explicit contrast/comparison of the following (or other) vol models in terms of the suitability for addressing some empirical problem? Wavelet multiresolution ...
8
votes
3answers
6k views

Trading C++ Libraries

Are there any free c++ libraries that would have some of the functions that would be used in developing a trading strategy. For instance, calculating drawdown, Volatility Forecasting, MAE, MFE....etc. ...
7
votes
5answers
3k views

How to get greeks using Monte-Carlo for arbitrary option?

Let's assume I have an arbitrary option that I can price using Monte-Carlo simulation. What is the general approach (i.e. without relying on specific option type) to calculating the greeks in this ...
7
votes
4answers
1k views

Library to solve optimization problems

I'm working with C# and I start being bored writing optimization algorithm. Do you know of any free library containing this sort of algorithms. In particular I'm cutrently working with Semidefit ...
5
votes
7answers
2k views

Recommendation for a book on CVA/Credit Risk and PD/LGD/EAD modeling?

I need suggestions for some good books on the following topics: Credit Value Adjustment (CVA) / Credit Risk Probability of Default / Loss-Given-Default / Exposure-At-Default modeling Any pointers ...

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