15
votes
3answers
2k 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 ...
8
votes
3answers
1k views

How can one compute the Greeks on VIX Futures

I am guessing the short answer to this question is "use the chain rule and linearity of the derivative," but I am looking for more specific advice on how to compute the derivatives of a VIX futures ...
10
votes
3answers
548 views

Literature on generating synthetic time series for testing

I have some market data (daily time series) for bond prices and CDS indices and I would like to generate synthetic versions of these which are statistically "similar" for testing trading strategies. ...
7
votes
4answers
2k views

Real-time & Fast S&P 500 E-Mini Futures (ES) Data

I trade on local exchanges in Europe, but my HFT strategies need S&P 500 e-mini futures data (ES). I don't need to trade ES, but I need real-time data and I want to have it as fast as possible. ...
13
votes
2answers
651 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 ...
11
votes
3answers
2k 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 ...
5
votes
1answer
716 views

Value at Risk backtesting (kupiec)

I m doing my research on estimating Value at risk using different assumptions on volatility and then compare my results based on backtesting. I obtained results and just on question based on my ...
7
votes
2answers
400 views

How to shift amongst asset classes in response to relative value views?

I am designing an asset allocation strategy/fund which invests in four asset classes (via four independent sub-funds): Domestic equity International equity Domestic fixed income Foreign currencies ...
2
votes
2answers
2k views

Garch modelling on Stata

I would like to ask "how to do GARCH modelling on stata". Basically I want to estimate stock market volatility using daily data. I have one variable as return series, $r_t=\ln(\frac{P_t}{P_{t-1}})$. ...
5
votes
2answers
261 views

Which ETFs should I use to test my portfolio selection algorithm?

I have a portfolio selection algorithm I want to backtest, but I don't want to limit the inputs at any point in time. For example, I don't want to exclude the Japanese stock market, just because it ...
9
votes
1answer
250 views

Could banks move to continuous (rather than overnight) funding?

The dominant frequencies for Money Market and FX instruments were 6m and 3m for a long time, and banks slowly moved to commercial trades at those frequencies but funding overnight. If this is a step ...
9
votes
4answers
1k views

Is the risk-free rate really limited by inflation?

In all the classic texts on equities derivatives, there is an assumption of the risk-free rate r. We can immediately dismiss the concept of a fixed rate; all interest rates are variable (and ...
9
votes
3answers
1k views

How to solve for the implied stock lending rate given equity options prices?

When market makers price options on hard-to-borrow equities, they include the cost to borrow the underlying equity that their broker is going to charge them to sell the security short to hedge. I'm ...
8
votes
1answer
826 views

What is the Sugihara Trading System?

I recently heard the term Sugihara Trading System. I guess it might be some trading strategy or a special model to predict trends in market data, but I couldn't find out anything about it. Does anyone ...
10
votes
3answers
783 views

Where can I find a database of ALL ETFs, sorted by age?

I have a portfolio allocation strategy I want to backtest, but I need a large "universe" of ETFs for it to choose from at each time period. I was thinking of starting with a criteria such as "all ...
6
votes
1answer
161 views

What tradeoff is there to using an accurate estimate with a large confidence interval?

I am working on calibrating a Heston model from simulated historical stock data. After obtaining an accurate estimate of the model parameters I found very large 95% confidence intervals for these ...
8
votes
1answer
530 views

Hedging long municipal bond portfolio using BMA/SIFMA

A question from one of my members. Anyone have experience hedging a long municipal bond portfolio using BMA / SIFMA swaps? Anything you can share regarding sizing and structuring the swap and ...
12
votes
4answers
976 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 ...
6
votes
2answers
825 views

Can one use options on Treasury futures to hedge a portfolio?

Can one use options on Treasury bond futures to hedge a typical fixed income portfolio? If so, how can one estimate the duration for an option on a Treasury futures contract, and taking this a step ...
7
votes
2answers
475 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)? ...
5
votes
3answers
2k views

using quantlib function in my c++ program

I want to include the QuantLib function for option greeks calculations in my own C++ code. My question is: can I just include those functions? I don't want to use the rest of their stuff. I obviously ...
6
votes
3answers
377 views

Should the average investor hold commodities as part of a broadly diversified portfolio?

Many mutual funds sell "asset allocation" products which include appropriately sized investments in a variety of asset classes meant for a prototypical investor. Some of these, such as PIMCO, even ...
2
votes
1answer
342 views

Techniques for forecasting short-frame data?

I'm having a problem in which a time series of 24 data points is given to forecast the next 12 data points. This 24 data points might be sparse (many are missing). Do you have any suggestion on what ...
7
votes
1answer
712 views

Expected return from a multiple linear regression?

How can I compute the predicted return from a linear regression that includes a number of different terms. For instance, suppose my equation is: $r_{future} = \alpha + \beta_1 r_{history} + \beta_2 ...
29
votes
12answers
27k views

Why is C++ still a very popular language in quantitative finance? [closed]

I had to ask this question after reading the answers to What programming languages are most commonly used in quantitative finance? I understand that C++ programs can be optimized pretty well and are ...
9
votes
2answers
638 views

What is the relationship between risk aversion and preference for skewness and kurtosis in portfolio optimization?

Is there any relationship between the risk aversion coefficient in an individual's utility function (commonly used in portfolio optimization) and the preference for higher moments such as skewness and ...
6
votes
2answers
368 views

The T+H Problem in Factor model forecasts

Suppose we train on M individuals consisting of T observations (i.e. TxM design matrix). The dependent variable is one-year return for each security (H = horizon of one year). In a factor model ...
8
votes
4answers
1k views

What kind of specialized hardware is used in trading?

What kind of computer hardware, in additional to the 'conventional' fare, is actually used in trading? And what languages is it typically programmed in? I'm interested in ASICs, FPGAs, that sort of ...
4
votes
2answers
773 views

How to calculate optimal standard deviation bands for trading?

I am trading with standard deviation bands (6 bands) on de-trended data. How can I find the most profitable signals with neural network or GA with standard deviation bands? Should I first find the ...
6
votes
2answers
222 views

How well does CAPM beta track the risk of a particular market relative to world markets?

Can the CAPM beta of emerging markets be less than the beta of the developed markets? As part of my research, I run regressions using market indices. I estimate the beta using a regression of MSCI ...
2
votes
1answer
159 views

Do bond credit ratings suffer from “ratings inflation”?

A friend of mine who studies game theory suggested that credit ratings from the bond ratings agencies, such as Moody's, S&P, and Fitch, may suffer from a sort of "ratings inflation" similar to the ...
1
vote
0answers
468 views

signal processing + finance? [closed]

I am a postgrad student doing a master in Signal Processing and I have graduated from an engineering school I was wondering if there are any jobs in finance that are opened to people having this kind ...
10
votes
6answers
2k views

References for developing an automated trading system?

I am looking for references on the architecture of automated trading systems and the trading algorithms behind them. I am more interested in system development than analysis. A couple of books I ...
8
votes
1answer
1k views

Is QuantLib more trouble than it's worth?

I'm just starting to work with QuantLib and wonder if I'm going down a very wrong path. I'm working on a site that presents the visitor with a table of streamed real-time options data, including ...
4
votes
1answer
403 views

Is there any gamma in basis (i.e., floating for floating) interest rates swaps?

It is well known that vanilla fixed for floating swaps usually have a bit of gamma, but does a floating for floating (basis) swap have any? For the sake of simplicity, let's assume that both legs of ...
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 ...
11
votes
2answers
2k 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 ...
6
votes
2answers
1k views

Why does this Co-integrated basket look too good to be true?

You need quantmod & tseries in R to run this: ...
6
votes
1answer
298 views

Which valuation measures are most useful for equity market timing?

Competing academic studies, such as Asness's Fight the Fed Model and Lee, Myers, and Swaminathan's What is the Intrinsic Value of the Dow, offer differing answers to the question of whether equity ...
7
votes
3answers
1k views

What programming language is best suited for implementing DeMark?

Jason Perl's book DeMark Indicators details rules for calculating signals developed by Thomas DeMark. These rules are not complex in themselves, but there is no dirth of ...
1
vote
1answer
3k views

How to get a list of stocks symbol of a specific exchange? [duplicate]

Possible Duplicate: Where to download list of all common stocks traded on NYSE, NASDAQ and AMEX? Is it possible to download a list of stocks that belong to a specific exchange (e.g. NASDAQ, ...
6
votes
1answer
4k 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 that ...
20
votes
4answers
4k views

Why do high frequency traders use rapidly cancelled limit orders?

In reading about the various practices and strategies of high frequency traders, one of the most mysterious to me is "fleeting orders," or orders that are cancelled almost immediately after they are ...
8
votes
3answers
1k views

How to generate synthetic FX data for backtesting?

I want to generate synthetic forex data for the purpose of backtesting my trading algorithms. I have some rough ideas in mind on how to do this: Start with a curve representing a trend, then randomly ...
4
votes
6answers
2k views

Is there a quantitative finance ranking system for universities?

I am a PhD student in stochastic analysis/control and had a MSc degree in Financial Mathematics. I am interested in determining there is a quantitative finance ranking system for universities like ...
5
votes
1answer
568 views

Why write options on a volatility target index?

There seems to be increasing interest in risk controlled products such as volatility target indices and derivatives products on these underlyings. From a risk management perspective what are the ...
4
votes
2answers
374 views

What does put-call parity imply about option premiums?

We know that $$C-P = PV(F_{0,T}-K)$$ When we create a synthetic forward, we buy call and sell a put at the same strike price $K$. When we buy the call why do we assume the premium is positive? When ...
5
votes
5answers
2k views

How many explanatory variables is too many?

When researching any sort of predictive model, whether using ordinary linear regression or more sophisticated methods such as neural networks or classification and regression trees, there seems to ...
23
votes
9answers
2k views

Has high frequency trading (HFT) been a net benefit or cost to society?

Various studies have demonstrated the very large and growing influence of high frequency trading (HFT) on the markets. HFT firms are clearly making a great deal of money from somewhere, and it stands ...
9
votes
2answers
1k views

How to get list of all CUSIPS/ISIN?

I want a list of all CUSIPs/ISINs. It would be nice if they were also categorized (e.g. Bonds/Funds etc). Where can I get such a data?

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