17
votes
2answers
980 views
How to quickly estimate a lower bound on correlation for a large number of stocks?
I would like to find stock pairs that exhibit low correlation. If the correlation between A and B is 0.9 and the correlation between A and C is 0.9 is there a minimum possible correlation for B and C? ...
17
votes
2answers
475 views
How are distributions for tail risk measures estimated in practice?
Let's say you want to calculate a VaR for a portfolio of 1000 stocks. You're really only interested in the left tail, so do you use the whole set of returns to estimate mean, variance, skew, and shape ...
17
votes
2answers
555 views
How do you correct Max Draw-Down for auto-correlation?
When returns are auto-correlated, calculating a Sharpe ratio := $\frac {mean(x)}{\sqrt{var(x)}}$, (where $x$ are the returns) is complicated, but basically solved (see, e.g. Lo (2005)). Without the ...
17
votes
2answers
706 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
1k views
Any research on how natural language processing can be used to forecast stocks?
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 ...
16
votes
5answers
2k views
How to identify technical analysis chart patterns algorithmically?
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 ...
16
votes
4answers
940 views
How do I adjust a correlation matrix whose elements are generated from different market regimes?
Say I want to calculate a correlation matrix for 50 stocks using 3-year historical daily data. And there are some stocks that were recently listed for one year.
This is not technically challenging ...
16
votes
6answers
9k views
What's the difference between volatility and variance?
How do they differ in what they imply about an underlying's (or any variable's) movement?
16
votes
3answers
2k views
What is a stationary process?
How do you explain what a stationary process is? In the first place, what is meant by process, and then what does the process have to be like so it can be called stationary?
16
votes
5answers
1k views
Most successful investors using academic-based framework?
What are the most famous/best performing absolute-return funds employing approaches based on mainstream finance theory (i.e., theory presented in Journal of Finance, AER, Econometrica, using typically ...
16
votes
7answers
1k views
How to design a custom equity backtester?
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 ...
16
votes
3answers
425 views
Tests that any system must pass to be taken seriously
In an interview from '96 Bill Eckhardt points out that there are tests that any system must pass to be taken seriously.
That is: tests for (1) overfitting, (2) post-dictiveness, (3) maldistribution ...
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 ...
16
votes
2answers
465 views
How do macro funds manage risk and model asset returns? Do they use factor models?
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 ...
15
votes
8answers
2k views
What kind of basic framework or application do you use to run your trading algorithms?
I heard about MetaTrader from http://www.metaquotes.net. Is there any other framework or program available? Do you use different software for backtracking and running your trading algorithms?
Thank ...
15
votes
6answers
5k 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 ...
15
votes
5answers
2k views
Recommendations for books to understand the math in quantitative finance papers?
Can anyone recommend books that explain the math used in quantitative finance academic papers?
15
votes
4answers
1k views
15
votes
5answers
2k views
Skew arbitrage: How can you realize the skewness of the underlying?
It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage.
Volatility arbitrage (or ...
15
votes
7answers
650 views
Are there ways to measure the risk aversion of a representative investor, based on publicly available market data?
Are there ways to measure the risk aversion of a representative investor, based on publicly available market data? Public available data could include asset price, volume, and flow data, and may be ...
15
votes
3answers
971 views
Local Volatility vs. Stochastic Volatility
Are there any empirical observations or practices when to prefer Local Volatility Model for pricing over Stochastic Model or vice versa?
15
votes
2answers
766 views
Statistical properties of stochastic processes for moving average trading to work
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, or this paper ...
15
votes
4answers
2k views
The Application of Quantitative Finance in Sports Betting
I notice that on the surface, there are some similarities between quantitative sports betting and quantitative finance. Both has the concept of arbitaging etc.
What are the applications of ...
15
votes
2answers
735 views
How to execute a large futures order?
I am currently trading futures products on some contracts that have low volumes. More accurately, the volumes of working orders in the book are fairly light. I am trying to execute a relatively large ...
15
votes
2answers
1k views
How to forecast volatility using high-frequency data?
There is a large literature covering volatility forecasts with high-frequency tick data. Much of this has surrounded the concept of "realized volatility", such as:
"Realized Volatility and ...
15
votes
3answers
2k views
Main backtesting & trading solutions: QuantFactory, Deltix, etc.
What are the most used/mature/promising commercial solutions today which handle backtesting/ automated trading needs?
I'm talking about vertical product suites like QuantFactory or Deltix which ...
14
votes
7answers
4k 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 ...
14
votes
6answers
1k views
How random are financial data series?
Pseudorandom number generators are often tested using e.g. a test suite like Diehard tests or Dieharder. If one would run these tests e.g. on stock market time series or other financial data, would ...
14
votes
5answers
3k views
Training set of tick-by-tick data?
I'm looking to find a free source of tick by tick data (<1sec) for training purposes. It doesn't need to be longer than a day, and I don't care what instrument, or exchange, or time it is. I just ...
14
votes
4answers
1k 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 ...
14
votes
7answers
4k views
Any known bugs with Yahoo Finance adjusted close data ?
Yahoo Finance allows you to download tables of their daily historical stock price data.
The data includes an adjusted closing price that I thought I might use to calculate daily log returns as a ...
14
votes
3answers
2k views
Can the concept of entropy be applied to financial time series?
I am not familiar with the concept of entropy for time series. I am looking for good reference papers and examples of use.
14
votes
2answers
793 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 ...
14
votes
6answers
2k views
Can social media be applied to algorithmic trading?
Can social media sites, like Twitter, be used to analyze financial markets for algorithmic trading? How much research has been done on this topic?
14
votes
5answers
2k 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
3answers
1k views
Why hold options when you can dynamically replicate their payoff?
When holding vanilla options, you can cancel out, theoretically, all risk with dynamic (delta) hedging. Then you earn the "risk free rate of return".
Why would you make such a portfolio when you can ...
14
votes
4answers
2k views
Free paper trading site with an API
I've got a quanitative trading model I want to test out in the real stock market. Right now, I'm writing some code to pull "live" quotes from yahoo, feed them to my model, and keep track of the ...
14
votes
2answers
419 views
Who has introduced the term 'vega' and why?
The sensitivity of the option value $V$ to volatility $\sigma$ (a.k.a. vega) is different from the other greeks. It is a derivative with respect to a parameter and not a variable. To quote from Paul ...
14
votes
3answers
949 views
Is there a way to estimate (predict) the half life of a quantitative trading system?
Usually even good performing quant trading strategies work for a while and then return start to shrink. I see two reasons for that which would probably give rise to different analysis:
The Strategy ...
14
votes
3answers
614 views
When do Finite Element method provide considerable advantage over Finite Differences for option pricing?
I'm looking for concrete examples where a Finite Element method (FEM) provides a considerable advantages (e.g. in convergence rate, accuracy, stability, etc.) over the Finite Difference method (FDM) ...
14
votes
1answer
671 views
Portfolio optimization with monte carlo sampling from predictive distribution
Let's say we have a predictive distribution of expected returns for N assets. The distribution is not normal. We can interpret the dispersion in the distribution as reflection of our uncertainty (or ...
6
votes
0answers
127 views
How to estimate the following model?
Suppose I have the following model:
$$r_t=\sigma_t * \epsilon_t$$
where $r_t$ is the return at time t, $\sigma_t$ is the volatility, the model used to model this volatility is an exponentially ...
5
votes
1answer
245 views
Problems with dealing with GARCH models and intra-day data
Short question would be "Which type of model from GARCH family is most suitable for modeling 5-minute data returns ?" but I've added some story to it.
Long time ago I was preparing my thesis, one ...
5
votes
2answers
64 views
VaR for portfolio of funds
Let's assume we need to calculate a 1-day VaR for a portfolio of funds. Funds are traded, they can be bought and sold every day. We know exactly what the assets in each fund are. What is the right way ...
3
votes
2answers
174 views
Fitting distributions to financial data using volatility model to estimate VaR
I want to fit a distribution to my financial data using a volatility model to estimate the VaR. So in case of a normal distribution, this would be very easy, I assume the returns to follow a normal ...
2
votes
2answers
167 views
Implied Volatility for Asian option
I am new to the topic of Asian options. Assume I want to price an Asian put (fixed strike, discrete average) in the Black Scholes world. I know implementations to calculate the value but what is the ...
0
votes
0answers
2 views
discounf of asian vs european vols
i understand the discount for asian vs european vol is depending on time to expiry and length of averaging period. this makes sense intuitivelly; a short averaging period far away blurs into a single ...
-3
votes
0answers
11 views
discount factor question [closed]
really confused about this question, can someone please answer
A project requires \$10 million dollars in initial investment. The projected revenue is $3 million dollars per year for the next 5 ...
-4
votes
0answers
28 views
Why are call options needed? [duplicate]
My question is actually less ambitious and more specific then the title may have lead you to believe.
Suppose the interest rate is $25\%$ you have a stock at time zero price of $S_0=50$ and at time 1 ...
-7
votes
0answers
78 views
Compute a time series of daily volatilities in R [closed]
I want to use the ewma algorithm to compute a time series of daily volatilities. My $\lambda=0.97$. The start volatility is from the first $50$ returns. I want to take a vector of returns, a decay ...
