15
votes
2answers
1k 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
3answers
1k 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 ...
15
votes
1answer
944 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 ...
14
votes
7answers
11k views

Is the Interactive Brokers API suitable for hft?

By hft here I mean anything with holding period less than 5-10mins... Any empirical/anecdotal evidence of using it successfully on even higher frequencies?
14
votes
5answers
15k views

How to annualize Sharpe Ratio?

I have a basic question about annualized Sharpe Ratio Calculation: if I know the daily return of my portfolio, the thing I need to do is multiply the Sharpe Ratio by $\sqrt{252}$ to have it ...
14
votes
5answers
2k views

What methods do you use to improve expected return estimates when constructing a portfolio in a mean-variance framework?

One of the main problems when trying to apply mean-variance portfolio optimization in practice is its high input sensitivity. As can be seen in (Chopra, 1993) using historical values to estimate ...
14
votes
7answers
8k 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?
14
votes
4answers
7k 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 ...
14
votes
7answers
5k views

What is the “delta” option quoting convention about?

At my work I often see option prices or vols quoted against deltas rather than against strikes. For example for March 2013 Zinc options I might see 5 quotes available for deltas as follows: ...
14
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 ...
14
votes
8answers
930 views

Measuring liquidity

While liquidity is one of the key figure of financial markets, It seems to be very difficult to measure. Volume is sometime used as a proxy but can sometimes be completly irrelevant. Could you point ...
14
votes
5answers
1k views

How to estimate the probability of drawdown / ruin?

A fairly naive approach to estimate the probability of drawdown / ruin is to calculate the probabilities of all the permutations of your sample returns, keeping track of those that hit your drawdown / ...
14
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 ...
14
votes
1answer
3k views

Transformation from the Black-Scholes differential equation to the diffusion equation - and back

I know the derivation of the Black-Scholes differential equation and I understand (most of) the solution of the diffusion equation. What I am missing is the transformation from the Black-Scholes ...
14
votes
2answers
2k views

What type of analysis is appropriate for assessing the performance time-series forecasts?

When using time-series analysis to forecast some type of value, what types of error analysis are worth considering when trying to determine which models are appropriate. One of the big issues that ...
14
votes
5answers
15k views

Mapping symbols between tickers, Reuters RICs and Bloomberg tickers

Is there any known solution (preferably open source) to map between ticker symbols, Reuters and Bloomberg symbols. For example: Ticker: AAPL Reuters: RSF.ANY.AAPL.OQ Bloomberg: AAPL US Equity ...
14
votes
8answers
4k views

Probability of touching

For a vanilla option, I know that the probability of the option expiring in the money is simply the delta of the option... but how would I calculate the probability, without doing monte carlo, of the ...
14
votes
2answers
641 views

Concentration risk in credit portfolio

How do you model concentration risk of credit portfolio in IRB/Basel II framework?
14
votes
2answers
491 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
2answers
1k views

Is there a standard method for getting a continuous time series from futures data?

I would like to be able to analyse futures prices as one continuous time series, so what kinds of methods exist for combining the prices for the various delivery dates into a single time series? I am ...
14
votes
2answers
692 views

Parameter estimation of Ornstein–Uhlenbeck and CIR processes

I would like to estimate Ornstein–Uhlenbeck process' parameters via Kalman filter. My process is the following one: $\text{d}x_{t}=\alpha(\theta-x_{t})\text{d}t+\sigma\text{d}W_{t}$ I'm interested ...
13
votes
4answers
2k views

Good quant finance jokes

Have a good quant joke? Share it here. The principle "should be of interest to quants" trumps. I would be particularly keen to learn jokes which involve some nontrivial finance/mathematics. I am ...
13
votes
6answers
7k 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 ...
13
votes
5answers
3k views

Proof that you cannot beat a random walk

There is much speculation to what degree financial series are random (and what kind of randomness prevails). I want to turn the question on its head and ask: Is there a mathematical proof that ...
13
votes
5answers
2k views

What C++ math libraries are typically used by quants?

Before you mark question as off-topic, please read it - it is, actually, quant-related. Basically, I'm working on an app that spits out a lot of C++ math. When it comes to simple things like ...
13
votes
2answers
1k views

How do we use option price models (like Black-Scholes Model) to make money in practice?

In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so ...
13
votes
3answers
8k views

Correlation between prices or returns?

If you are interested in determining whether there is a correlation between the Federal Reserve Balance Sheet and PPI, would you calculate the correlation between values (prices) or period-to-period ...
13
votes
2answers
835 views

What are the limitations of Gaussian copulas in respect to pricing credit derivatives?

The practice of using Gaussian copulas in modeling credit derivatives has come under a lot of criticism in the past few years. What are the major arguments against using the copula method in this ...
13
votes
6answers
1k views

Why are options trades supposed to be delta-neutral?

I'm reading Natenberg's book, and he says that all options trades should be delta neutral. I understand that this prevents small changes in the underlying price from changing the price of the option, ...
13
votes
4answers
734 views

Approximately what proportion of a stock’s volatility is explained by market movement?

Assume we decompose the daily (log) returns of a stock as beta times market movement plus an idiosyncratic part. If this is done ex-ante, what proportion of the variance is explained by the market ...
13
votes
4answers
4k 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 ...
13
votes
2answers
194 views

How reliable is Benford's Law in forecasting crises?

I was recently reading an article about how financial accounting has increasingly deviated from the ratios expected by Benford's Law. (Benford's Law and Decreasing Reliability). The author discusses ...
13
votes
2answers
512 views

Issues when considering a quantitative trading/finance firm

I have an upcoming quantitative trading interview (prop desk at a large bank), and I would like to have some good questions to ask about the group. However, I am changing fields from academia and I do ...
13
votes
2answers
664 views

Duality between constant rebalanced portfolio (CRP) and corresponding derivative

One of the greatest achievements of modern option pricing theory is finding corresponding dynamical trading strategies in linear instruments with which you can replicate and by that price derivative ...
13
votes
5answers
1k views

George Soros models

Mr. Soros in his books talked about principles which are not used by today's financial mathematics — namely reflexivity of all actions on the market. Simply it can be given by following: ...
13
votes
2answers
653 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 ...
13
votes
3answers
3k views

What are the best sources for equity quantitative research?

What are the best sources of quantitative finance research in equities? I will list a couple and note an asterisk if the research is available by request (i.e. non-clients) or online: BAC-Merrill ...
13
votes
3answers
4k views

Free market data (delayed or snapshot)

I know there are similar questions but I don't think there are any identical ones. Basically, I'm looking for one of these two things. Delayed market data feed. A tick by tick feed, but delayed by ...
13
votes
2answers
914 views

Modelling with negative interest rates

For a project, I am interested to model the impact of recently negative interest bonds on the portfolio. The literature on modelling negative interest rates is limited, and the only theory I could ...
13
votes
2answers
811 views

Why isn't the Nelson-Siegel model arbitrage-free?

Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e. $$dX_t=\sigma dB_t-AX_tdt$$ and the spot interest rate evolves by the following equation: $$r_t=a+b\cdot X_t.$$ After solving for $X_t$ ...
13
votes
1answer
391 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?
13
votes
1answer
377 views

Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis

I want to know if there are some standardized measures to evaluate how irrationally human a portfolio manager is. Are there any performance measures or scorings for behavioral finance effects? How ...
12
votes
10answers
5k 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 ...
12
votes
6answers
910 views

Setting the r in put-call parity?

Put-call parity is given by $C + Ke^{-r(T-t)} = P + S$. The variables $C$, $P$ and $S$ are directly observable in the market place. $T-t$ follows by the contract specification. The variable $r$ is ...
12
votes
7answers
5k views

What is the best data structure/implementation for representing a time series?

I was wondering what is best practice for representing elements in a time series, especially with large amounts of data. The focus/context is in a back testing engine and comparing multiple series. ...
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 ...
12
votes
4answers
995 views

HFT: What is the big differentiator in comparison to other time scales?

High Frequency Trading (HFT) seems to be the big money making mystery machine these days. The purported source of unlimited floods of gelt pouring into the investment shops using it. For me, HFT is ...
12
votes
5answers
1k views

is beta of a portfolio always meaningful?

Consider the following strategies: a stat arb strategy with no overnight exposure, but significant market exposure intraday. a market timing model which is always long or short the market. etc is ...
12
votes
4answers
9k views

Why are GARCH models used to forecast volatility if residuals are often correlated?

The answers to this question on forecast assessment suggest that if the sequence of residuals from the forecast are not properly independent, then the model is missing something and further changes ...
12
votes
3answers
2k 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 ...

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