All Questions
9
votes
1answer
339 views
How to estimate the covariance of an index with a basket of stocks?
What would be an ideal way to estimate the covariance of an index with a basket of stocks? For example, should I use one-tail ANOVA test or an individual stock & index F-test?
5
votes
4answers
620 views
How to compute momentum from equity time series?
Let's say I have time series of stock prices for many stocks. What's the best way to sort the stocks based on which have been going up/stayed the same relative to others? Can this be done with a ...
5
votes
1answer
324 views
Applying models with normality assumption on tick data?
Beginner question. Having read a couple of papers and book chapters on high-frequency data forecasting, I'm surprised (and confused) that the same time series techniques can be applied to ...
15
votes
2answers
730 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 ...
0
votes
0answers
110 views
Getting the actual distribution of a stock price at time T using implied volatility [duplicate]
Possible Duplicate:
How to derive the implied probability distribution from B-S volatilities?
Let's assume a stock price S, with volatility $\sigma$ constant, no dividend, and risk free ...
7
votes
1answer
558 views
Why does the following data fail my cointegration test?
I have some closing price data for two Australian banks which track each other very closely.
http://dl.dropbox.com/u/12337149/stat/CBA.csv
http://dl.dropbox.com/u/12337149/stat/WBC.csv
Code from ...
10
votes
2answers
586 views
How to forecast expected volatility from high-frequency equity panel data?
I'm wading through the vast sea of literature on realized volatility estimation and expected volatility forecasting (see, e.g. Realized Volatility by Andersen and Benzoni, which cites 120 other ...
5
votes
2answers
219 views
How can one determine approximately what percentage of options trades are buyer-initiated vs. seller-initiated?
How can one determine approximately what percentage of options trades are buyer-initiated vs. seller-initiated? What measures of order flow are available specifically for options, preferably for ...
6
votes
0answers
264 views
Probability distribution of maximum value of binary option?
A binary option with payout \$0/\$100 is trading at \$30 with 12 hours to
expiration.
Assuming the underlying follows a geometric Brownian motion (hence volatility remains constant), what ...
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 ...
7
votes
3answers
298 views
Is there data on market participants at a particular moment?
I am looking for data on market participants at a particular moment (or some proxy/approximation). For example, how can I tell whether mostly big players and HFTs are dominating the market in ...
7
votes
0answers
235 views
What are the major characteristics of natural gas volatility and options?
Seasonality is a big deal in the natural gas markets. My understanding is that they are broadly divided into summer and winter, with seasonality in both price and the volatility.
What does this ...
6
votes
2answers
240 views
What is the denominator in calculating daily range as a percentage?
Assume a stock had an open of \$100 and a close of \$102. If the high of the day was \$103 and the low was \$99, the daily range is obviously \$4. What is the best way to express the daily range in ...
6
votes
2answers
207 views
Where can you find data on non-trading stocks?
My data source for end of day prices only gives the prices of the trades during the day. If a stock stops trading/goes out/moves to another exchange|changes symbol. I never hear about this.
My ...
6
votes
1answer
357 views
How to perform basic integrations with the Ito integral?
From the text book Quantitative Finance for Physicists: An Introduction (Academic Press Advanced Finance) I have this excercise:
Prove that
$$
...
9
votes
3answers
820 views
How to optimally allocate capital among trading strategies?
I'm trying to find an optimal way to allocate capital among trading strategies.
"Quantitative Trading" by Ernie Chan claims on page 97 that the optimal fraction of capital to allocate to a given ...
4
votes
2answers
152 views
How do earnings estimates respond to changes in underlying fundamentals and economic conditions?
Sell-side analysts' earnings estimates for individual companies, typically reported by I/B/E/S, are a key ingredient to many quantitative models. However, revisions to analyst estimates tend to lag ...
22
votes
1answer
1k views
Is my trading strategy search methodology sound?
I'm building an algorithmic trading business. I'd be grateful for informed comments and opinions on my trading strategy search methodology.
Goal
Develop (profitable!) fully automated intra-day ...
8
votes
3answers
420 views
Reference on Markov chain Monte Carlo method for option pricing?
I have to implement option pricing in c++ using Markov chain Monte Carlo. Is there some paper which describes this in detail so that I can learn from there and implement?
7
votes
1answer
397 views
How to compute modified-CVaR in the PerformanceAnalytics package?
My objective is to measure the modified-CVAR for a portfolio given its weights and matrix of security returns. Luckily the wonderful package PerformanceAnalytics has an ES() function that does just ...
1
vote
1answer
841 views
How to get started in quant finance? [closed]
I am a programmer and I have no finance background. I am looking for advice as to how to get started in the quant finance industry. My goal would be to have solid understanding about the industry and ...
2
votes
0answers
366 views
How to Calculate Risk of Ruin [closed]
I'm reading a book titled "A Trader's Money Management System" and it discusses risk of ruin(ROR) tables. It says that you can have a zero probability of ROR with a payoff ratio of 2 to 1 and a win ...
13
votes
1answer
362 views
What should be considered when selecting a windowing function when smoothing a time series?
If one wants to smooth a time series using a window function such as Hanning, Hamming, Blackman etc. what are the considerations for favouring any one window over another?
8
votes
1answer
820 views
What is the average Sharpe ratio of volatility arbitrage funds?
Where can I get data on performance metrics for volatility arbitrage funds? I am trying to compare the Sharpe ratio of my strategy to those of the major players.
7
votes
2answers
182 views
What do we really mean by put-call ratio and how should it be expressed?
I need to calculate the put-call ratio for an American option. But I'm a complete naïf: I don't know how. I think I'd use the put open interest and the call open interest. I can imagine two ways to ...
7
votes
2answers
411 views
What is a reasonable upper bound on the performance of a daily trading strategy?
I am backtesting an equity trading strategy which trades only once per day. Is there a general rule of thumb for the reasonable upper bound on the rate of return of such a strategy? For example, a ...
10
votes
2answers
732 views
How to build a regime-switching model which knows its own limits?
In recent months I've come to the conclusion that there are not only certain regimes in the markets (like bear or bull) but phases where all models fail because we are in uncharted territory. The ...
11
votes
1answer
3k 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 --> ...
3
votes
1answer
89 views
How Would You Categorize A Cap or Spread On A Monthly Sum Option?
I'm just trying to determine the appropriate naming convention for a category that holds cap or spread, or in other words, what category can I put cap and spread (in this context) into? Are they ...
7
votes
1answer
371 views
What techniques are used for testing order book implementations?
I am finishing the implementation of a limit order book for modeling NASDAQ. The order book works off of the ITCH feed. My question is what techniques are typically used for testing order books. I am ...
10
votes
3answers
1k views
At what point does someone using technical analysis become a Quant?
Sorry if the question sounds rough.
It's not my intention to devaluate something I've not yet understood like Quantitative Finance.
So to keep it simple:
is Quantitative Finance a science, like ...
9
votes
1answer
383 views
Can VIX be interpreted as a proxy for instantaneous volatility?
BJO06 (Table 2) estimate the following Cox-Ingersoll-Ross model for market variance, $\sigma^2_t$:
$\mathrm{d}\sigma^2_t = (\alpha_0 + \alpha_1\sigma^2_t)\mathrm{d}t + ...
-2
votes
2answers
184 views
How do I calculate expectancy from a past series of trades in my trading account? [closed]
Expectancy is defined as "How much money gained for every $1 risked".
What is the expectancy for this particular series of trades?
Risked €1, won €2
Risked €2, won €1
Risked €3, won €6
Risked €3, ...
7
votes
2answers
383 views
Is there any research on applying state-space or dynamic linear models to forecasting equity risk premia?
Is there any research on applying state-space or dynamic linear models to forecasting equity risk premia on a security-by-security basis with a medium term horizon (say 3 month to 12 months horizon)?
...
9
votes
1answer
273 views
penalizing negative skewness by linking $U(\mu)$ and $U(\Sigma)$
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where $U_1(\mu, \cdot) = U_2(\mu, \cdot)$, $U_1(\cdot, \Sigma) = U_2(\cdot, \Sigma)$ such that
\begin{equation*}
arg\inf\limits_{\mu \in U_1(\mu, ...
2
votes
1answer
168 views
How to quantify the impact of management cost on return?
Suppose funds X and Y are the same but X has 0.25% higher management cost. Suppose we are analyzing a 2 year interval. The simple models with discrete/continuous interval -assumptions are not really ...
6
votes
1answer
1k views
How to estimate probability of default from bond prices?
How do you use bond prices/yields to infer probabilities of default? I would think of it as follows:
Create a relationship between default free (e.g., Germany) and defaultable (e.g., Greece) bond ...
9
votes
3answers
2k 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 $\sqrt{(days/252)}$ $*volatility*mean*$ $\log(mean)$. ...
11
votes
3answers
2k views
Papers about backtesting option trading strategies
I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world ...
8
votes
3answers
712 views
What tools are used to numerically solve differential equations in Quantitative Finance?
There are a lot of Quantitative Finance models (e.g. Black-Scholes) which are formulated in terms of partial differential equations. What is a standard approach in Quantitative Finance to solve these ...
13
votes
2answers
564 views
How do you distinguish “significant” moves from noise?
How do you distinguish between losses that are within the normal range for day-to-day shifts and situations with a real potential for loss? The specific application I have in mind is pattern ...
10
votes
3answers
1k views
How to incorporate technical indicators into neural networks?
I plan to develop a neural network to trade commodities futures, but while messing around with some code, a question came up. If I understand correctly, people use various technical indicators with ...
6
votes
1answer
229 views
How to build the short end of a zero coupon curve for non-core Eurozone countries?
I am in the process of building zero coupon curves for some countries in the Eurozone.
I have the following data sets:
Euribor and EONIA
Swap rates
Bond price and yields
The bond prices (and thus ...
6
votes
2answers
191 views
Is it better to grade hedging strategies based on the sum of absolute or squared hedging errors?
Let's say I have one strategy that has a hedging error of:
2,
2,
-2,
-2
Let's say I have another strategy that has a hedging error of
.5,
.5,
3,
3
Would it be a better idea to grade the hedging ...
6
votes
1answer
1k views
How do I reproduce the cross-sectional regression in “Intraday Patterns in the Cross-section of Stock Returns”?
Recently I was trying to reproduce the results of "Intraday Patterns in the Cross-section of Stock Returns". The authors used cross-sectional regression to determine which intraday lags have ...
18
votes
3answers
619 views
How can an ETF outperform its benchmark index?
Deutsche Bank’s ETF platform, db X-trackers, provides a rather remarkable ETF tracking Euro Stoxx 50 (which is the most widely used regional blue-chip index in Europe).
What makes it remarkable is ...
17
votes
2answers
554 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 ...
11
votes
6answers
1k 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 ...
6
votes
2answers
457 views
What quant terms to use to search for papers about “stop-hunting” trading strategies?
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 ...
1
vote
0answers
217 views
Delta-Omega Hedging [closed]
I am currently trying to understand the in's and out's of options and more specifically hedging. I came across a document that was talking about Delta Hedging which is just making sure the delta of ...
