9
votes
1answer
257 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
2answers
2k 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?
9
votes
1answer
266 views

Is there a standard / methodology to determine and grade the quality of OHLC data?

Inputs are most important to any decision making. For strategy backtesting, the OHLC data is one of the most inputs. So to ensure the correctness and integrity of OHLC data, we have checks on the ...
9
votes
1answer
900 views

What are the advantages / disadvantages of the ANTICOR algorithm?

The algorithm is introduced in the paper, Can We Learn to Beat the Best Stock. The obvious advantage is superior risk-adjusted returns (if you can actually achieve them). Transaction costs and ...
9
votes
1answer
281 views

Cost function for hedging portfolio

Let's say I am hedging an exotic instrument $E$ with $N$ liquid instruments $L_i$, each of which has an associated hedging ratio $R_i$ and a bid-ask spread $\delta_i$ (per dollar of notional). What ...
9
votes
1answer
867 views

How to use macroeconomic indicators for long/short trading strategies?

I am trying to understand how to use macroeconomic data in my trading. I understand that using such data could be used to gauge an overall view of the market and how it's doing as a whole. I have been ...
9
votes
1answer
412 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?
9
votes
1answer
258 views

rugarch: Joint estimation leads to different results

I want to fit an ARMA-GARCH model to my data using rugarch package in R. First of all, I look at the acf and pacf: ...
9
votes
1answer
409 views

Fixed income modeling

I am currently working on my research paper and trying to explain a two-dimensional variable: volume and instrument of corporate debt financing. Independent variables that I believe must be included ...
9
votes
1answer
284 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, ...
9
votes
1answer
317 views

Is creating constrained random portfolios a hard problem?

Creating random portfolios with weights $x_i$ can be thought of as sampling from the surface of a simplex given by $$Ex = f$$ and $$Ax \le b$$ Where $E$ and $A$ are constraint matrices for equality ...
9
votes
1answer
322 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 ...
9
votes
0answers
314 views

performance of historical VaR parameters

An historical VaR measure is parameterized in terms of the confidence level and also number of periods. Specifically, the $\alpha$% T-period VaR is defined as the portfolio loss x in market value over ...
8
votes
9answers
12k views

Strategy of Renaissance Technologies Medallion fund: Holy Grail or next Madoff?

Renaissance Technologies Medallion fund is one of the most successful hedge funds - ever! Yet it is very secretive. Do you have information on the strategy used that is not yet mentioned in the ...
8
votes
3answers
2k views

How does pair trading work?

Explain pair trading to a layman. What is it, why would you want to do it, and what are the risks? Provide a real life example.
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 ...
8
votes
4answers
1k views

How do I estimate the joint probability of stock B moving, if stock A moves?

I have two stocks, A and B, that are correlated in some way. If I know (hypothetically) that stock A has a 60% chance of rising tomorrow, and I know the joint probability between stocks A and B, how ...
8
votes
5answers
1k views

What functional form describes the implied volatility curve?

It is often convenient to parametrize the implied volatility curve to allow easy interpolation of volatility for any strike or maturity. What functional form describes the implied volatility curve for ...
8
votes
2answers
2k views

When to use Monte Carlo simulation over analytical methods for options pricing?

I've been using Monte Carlo simulation (MC) for pricing vanilla options with non-lognormal underlyings returns. I'm tempted to start using MC as my primary option-valuating technique as I can get ...
8
votes
4answers
387 views

Seeking Historical Non-Finance Datapoints for Backtesting

I'm working on some financial analysis code which I'd like to test against a historical dataseries to analyze the correlations to my algorithm to some non-finance related data. Ideally, I'd like to ...
8
votes
3answers
1k views

Hidden Markov Model & Its Application

I have started reading about HMM it gives an intuitive idea about what HMM is all about. I am looking out for example where its applied to Equity model using R / Excel. The material which I read so ...
8
votes
5answers
2k views

Why is the Drawdown measure not used for portfolio optimization?

I was asked yesterday by a colleague why we are doing asset allocation using optimizers which target, for a minimum expected return: the portfolio with the minimum variance or the portfolio with ...
8
votes
2answers
2k views

Why do we use GARCH(1,1) to predict volatility?

What makes GARCH(1,1) so prevalent in modeling especially in academia? What does this model has that is significantly better than the others?
8
votes
3answers
1k views

What is a Quant

In the interest of having "canonical questions" on this site ... What is a Quant?
8
votes
4answers
493 views

Why shrink the covariance matrix?

I'm trying to understand why it's useful to shrink the covariance matrix for portfolio construction or in fact general. Think I missing something. I know if you have 5,000 stocks it's a lot of ...
8
votes
1answer
2k views

Multilayer Perceptron (Neural Network) for Time Series Prediction

I have it in mind to build a Multilayer Perceptron for predicting financial time series. I understand the algorithm concepts (linear combiner, activation function, etc). But while trying to build the ...
8
votes
3answers
557 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?
8
votes
4answers
685 views

What are the risk factors in analysing strategies?

What do you think of strategies displayed on timelyportfolio.blogspot.com? I really like the fact that there is some code to reproduce the strategies, but they seem very elementary because he does ...
8
votes
1answer
721 views

academic papers about market making

I am looking for academic articles which model the p&L of market makers. I have read the Ho-Stoll (1984) article. Is there any recent article on this subject?
8
votes
4answers
679 views

Is this a common variation of sharpe ratio?

As an aside on his answer on another question Freddy said: Sharpe ratio is an often cited metric, though I do not like it too much because you are penalized for out-sized positive returns while ...
8
votes
3answers
487 views

How to test for and how to simulate price rise/fall asymmetry in the stock market

One of the stylized facts of financial time series seems to be a fundamental asymmetry between smooth upward movements over longer periods of time followed by abrupt declines over relatively shorter ...
8
votes
2answers
2k views

How can I compare distributions using only mean and standard deviation?

I only have means and standard deviations of samples of two random variables. What technique can I use to determine how similar the distributions these describe are? Assume that the values are built ...
8
votes
3answers
5k views

How should I calculate the implied volatility of an American option in a real-time production environment?

There are many models available for calculating the implied volatility of an American option. The most popular method, employed by OptionMetrics and others, is probably the Cox-Ross-Rubinstein model. ...
8
votes
5answers
1k views

How can I quantitatively test the validity of momentum indicators?

I am learning about quantitative finance, and I am struck by how different it is from the techniques that make it into magazines and TV, particularly technical analysis. Specifically, if they say an ...
8
votes
3answers
754 views

Alternate money management strategies to Kelly?

Other than Kelly (or fractional derivatives), are there other money management strategies in wide use among quant funds? Certainly Kelly is mathematically optimal, but perhaps there are other ...
8
votes
3answers
2k views

Is variable binning a good thing to do?

Let's say you have a logistic regression model. Some of the factors are intrinsically categorical but some are continuous variables. Under which circumstances should a continuous variable be binned ...
8
votes
4answers
615 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 ...
8
votes
2answers
2k views

Kelly criterion and Sharpe ratio

Whats the relationship between the Kelly criterion and the Sharpe ratio? $$ f=\frac{p(b+1)-1}{b} $$ where $f$ is a percentage of how much capital to place on a bet, $p$ is the probability of ...
8
votes
2answers
1k views

What is “high frequency quoting” or “quote spam”?

What is called "high frequency quoting" or "quote spam" in the context of high frequency trading? Why do some people consider that as a problem for the market?
8
votes
3answers
2k 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) + ...
8
votes
3answers
1k views

How to estimate real-world probabilities

In the world of finance, Risk-neutral pricing allow us to estimate the fair value of derivatives using the risk free rate as the expected return of the underlyings. However, the behavior of ...
8
votes
1answer
243 views

Do weights from portfolio theory contain bias?

I want to experiment with some portfolio modelling and I was wondering if you guys could help me with something. If I try to estimate and implement the traditional two-fund portfolio consisting of one ...
8
votes
3answers
2k views

How does volatility affect the price of binary options?

In theory, how should volatility affect the price of a binary option? A typical out the money option has more extrinsic value and therefore volatility plays a much more noticeable factor. Now let's ...
8
votes
3answers
841 views

Why isn't all market data free?

I am hoping any answers can be threaded somewhere between "don't be naive" and starting a quasi-political flame. Transparency is suppose to be good for markets and also a social good. The market ...
8
votes
1answer
485 views

QuantLib and exact numerical simulation

I've just downloaded quantlib and started playing around with it, and it looks like it's designed primarily to use Euler discretizations for everything -- so far as I can tell, there's not even a ...
8
votes
6answers
2k views

Vanna - any practical uses for risk or pnl attribution purposes?

What is the practical use for Vanna in trading? How can it be used for a PnL attribution?
8
votes
4answers
4k views

Except Zipline, are there any other Pythonic algorithmic trading library I can choose?

Except Zipline, are there any other Pythonic algorithmic trading library I can choose? Especially, for backtesting?
8
votes
2answers
2k views

How to calibrate Hull-White from zero curve?

I am interested in calibrating a Hull-White model to the market. I do not, however, have data on anything except the market zero curves, as all derivatives are being traded OTC. My plan is to ...
8
votes
1answer
2k views

What is an efficient data structure to model order book?

What is an efficient data structure to model order book of prices and quantities to ensure: constant look up iteration in order of prices retrieving best bid and ask in constant time fast quantity ...
8
votes
2answers
793 views

Analytical relationship between a covariance matrix and cross-sectional dispersion

Given an expected returns vector and a covariance matrix, one can perform a joint draw and measure the average cross-sectional variation as the standard deviation across returns for a particular joint ...

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