# All Questions

4answers
5k views

### Why is the VIX futures market usually in a state of contango?

I'm a VIX newbie and I'm trying to understand why the VIX futures market is usually in a state of contango. All I can figure is that the sellers of VIX futures contracts demand high "prices" (because ...
7answers
17k views

### What open source trading platform are available

I would like to compile a list of open source trading platforms. Something that would give an overview and comparison of different architectures and approaches.
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 ...
6answers
8k views

### Applications of Fourier theory in trading

What are fashionable applications of Fourier analysis in trading? I have heard vague ideas of applications in High Frequency Trading but can somebody provide an example, maybe a reference? Just for ...
3answers
663 views

### Empirical or theoretical quant insights that have shaped your thinking?

What are some quant theoretical or empirical insights that have shaped your thinking or provided a deeper conceptual basis for explaining returns and risk?
4answers
815 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 ...
8answers
7k 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 ...
2answers
3k 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 ...
3answers
3k views

### How to cluster stocks and construct an affinity matrix?

My goal is to find clusters of stocks. The "affinity" matrix will define the "closeness" of points. This article gives a bit more background. The ultimate purpose is to investigate the "cohesion" ...
7answers
5k views

### What are the best Journals & Conferences in Quantitative Finance?

What are some of the most prominent journals, conferences and publishing venues in Quantitative Finance research? Where can I find information more information about them? (e.g. impact factor and ...
7answers
1k 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 ...
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 ...
4answers
4k views

### Techniques to optimize the placement of orders in market making strategy?

Market making often requires placing and canceling a lot of orders. You have to buy and sell nearly simultaneously, so you need to move orders pretty often to beat other traders. But I would like to ...
2answers
1k 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 $X_t$ ...
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 ...
4answers
628 views

### Variable Selection in factor models

Let's say you have a dependent variable and many independent variables. What are the preferred metrics for sorting and selecting variables based on explanatory power? Let's say you are not concerned ...
8answers
3k views

### What are some good technical and non-technical books for a math lover to get in to quantitative analysis? [closed]

To get the ball rolling... I will answer this question this evening For people aware & unaware I think it would be a great way to introduce the group, resources for fundamental knowledge & ...
5answers
4k views

### What exactly is meant by “microstructure noise”?

I see that term tossed around a lot, in articles relating to HFT, and ultra high frequency data. It says at higher frequencies, smaller intervals, microstructure noise is very dominant. What is ...
3answers
15k 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 ...
2answers
1k 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 ...
5answers
6k views

### portfolio optimisation with VaR (or CVaR) constraints

I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with VaR or CVaR contraints. (some parts of my portfolio cannot exceed a certain VaR) How can I ...
6answers
3k views

### Formal proof for risk-neutral pricing formula

As you know, the key equation of risk neutral pricing is the following: $\exp^{-rt} S_t = E_Q[\exp^{-rT} S_T | \mathcal{F}_t]$ That is, discounted prices are Q-martingales. It makes real-sense for ...
4answers
3k views

### Is there any good research on support and resistance?

Could somebody advise me on where to find good literature on the justification or motivation for using support and resistance lines - and also lines of maximums and minimums. In finance, it is ...
6answers
12k views

### Are there any good tools for back testing options strategies?

There are all kinds of tools for backtesting linear instruments (like stocks or stock indices). It is a completely different story when it comes to option strategies. Most of the tools used are ...
3answers
6k views

### Is there an intuitive explanation for the Feynman-Kac-Theorem?

The Feynman-Kac theorem states that for an Ito-process of the form $$dX_t = \mu(t, X_t)dt + \sigma(t, X_t)dW_t$$ there is a measurable function $g$ such that g_t(t,x) + g_x(t, x) \mu(t,x) + ...
3answers
5k 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 ...
4answers
6k 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 ...
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. ...
2answers
812 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 ...
3answers
9k views

### What is a Heat Rate Option?

I tried a search with google but I can't find a clear definition of what a Heat Rate Option is. I would appreciate if someone could explain to me what this type of option is. My understanding is ...
4answers
7k views

### Is statistical arbitrage on FX possible?

Do you know of any papers which consider pairs trading (or statistical arbitrage) on foreign exchange? I couldn't find any. I asked this question on several forums and got no reply. Thus I guess this ...
2answers
2k 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 ...
1answer
3k views

### How do I compare implied and historic volatility?

what would you suggest are the starting points for comparing, in an easy, visual way, implied and delivered volatility surfaces? I'd like to see what the differences are between the historic surfaces, ...
1answer
5k views

### Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods: The time-series regression approach of Fama and French. Factors are ...
2answers
534 views

### Which interest rate model for which product

Given the multitude of existing interest rate models (ranging from simple to very complex) it would be interesting to know when the additional complexity actually makes sense. The models I have in ...
2answers
2k views

### Cleansing covariance matrices via Random matrix theory

I am exploring de-noising and cleansing of covariance matrices via Random Matrix Theory. RMT is a competitor to shrinkage methods of covariance estimation. There are various methods expressed usually ...
4answers
2k views

### Strictly local martingales: what is the intuition behind them?

A process $X_t$ is a local martingale if for each increasing sequence of stopping times $\{\tau_k,k=1,2,...\}$ the stopped process is a martingale. All true martingales are local martingales, but the ...
3answers
267 views

### Regression model when samples are small and not correlated

I received this question during an onsite interview for a quant job and I'm still scratching my head on how to solve this problem. Any help would be appreciated. Mr Quant thinks that there is a ...
0answers
3k views

### Algorithm to fit AR(1)/GARCH(1,1) model of log-returns

I am fitting numerically an AR(1)/GARCH(1,1) process to index and stock log-returns, $r_t=\log(P_t/P_{t-1})$, where $P_t$ is the price at time $t$, and thus far am not clear on where the observed log ...
2answers
1k 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 ...
7answers
4k 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 ...
3answers
4k views

### How are limit orders selected from the order book?

I'm sure there is a simple answer to this but I haven't had any luck with searches. I'm just wondering when someone places a market order which order(s) from the limit order book are selected to fill ...
4answers
28k views

### How to compute Implied Volatility Calculation?

We all know if you back out of the BS option pricing model you can derive and solve what the options is "implying" as its volatility. However, what is the formula used to derive Implied Volatility ...
4answers
1k 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 ...
5answers
2k 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 ...
4answers
3k 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.
6answers
25k views

### How to check if a timeseries is stationary?

I'm using KPSS Method to check if the series is stationary, but I would also like to use another test to confirm if the series is stationary or not, what method coudl I use?
8answers
1k 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 ...
3answers
3k 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 ...
3answers
3k views

### When does delta hedging result in more risk?

There's a question in an interview book saying "when can hedging an options position make you take on more risk?" The answer provided is that "Hedging can increase your risk if you are forced to both ...

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