3
votes
1answer
1k views

What latency should I use for backtesting a high-frequency strategy?

We're developing an HFT strategy for highly liquid futures traded at Eurex. We are planning to colocate our server and to use data feed of QuantHouse and execution API of ObjectTrading. Backtesting is ...
6
votes
2answers
227 views

How to get an analytic result for option price based on this model?

I defined such a model for stock price (1).... $$dS = \mu\ S\ dt + \sigma\ S\ dW + \rho\ S(dH - \mu) $$ , where $H$ is a so-called "resettable poisson process" defined as (2).... $$dH(t) = ...
13
votes
3answers
926 views

How to account for transaction costs in a simulated market environment?

I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction ...
-3
votes
1answer
495 views

Trading Strategies and Portfolio Constructions based on Cross Sectional Regression? [closed]

I often see trading strategies and portfolio construction that are based on cross-sectional regression. For example, I often see regressing some numbers against some factors. I was wondering how ...
19
votes
3answers
1k views

When do Finite Element method provide considerable advantage over Finite Differences for option pricing?

I'm looking for concrete examples where a Finite Element method (FEM) provides a considerable advantages (e.g. in convergence rate, accuracy, stability, etc.) over the Finite Difference method (FDM) ...
7
votes
3answers
4k views

What is a real world example of negative forward interest rate?

As the title says, I am looking for a real world example where a forward interest rate is negative. Theoretically this is not a problem at all, if I look for a 3M forward interest rate that starts ...
5
votes
0answers
301 views

generating (or tracking) the DJUBS commodity index

Dow Jones and UBS publish one of the most popular commodity index families, the Dow Jones-UBS Commodity Index and its subindices. They provide a detailed manual describing the composition of the index ...
8
votes
1answer
1k views

What are the steps to perform properly a risk factor analysis on a portfolio?

I have been asked to perform a factor analysis on a given portfolio, assume it's a Swiss portfolio in CHF. First step, I chose which factors I would like to see in my analysis. The first factors I ...
7
votes
1answer
1k views

Optimal execution and reinforcement learning

Suppose a fairly simple problem: You have to buy (resp sell) a given number of shares V in a fixed time horizon H with the aim to minimize your capital spent (resp maximize your revenue). There are ...
6
votes
2answers
269 views

Reseach on when people/institutions sell?

I am curious to know if there have been studies on when selling occurs and if any useful patterns exist. I am particularly interested in the behavior of sellers when they are under water on their ...
2
votes
2answers
355 views

Proof showing that dollar cost averaging always worse than lump sum alternative

I am referring to the article here. In a nutshell the article says that using data based on S&P 500 index going back as far as to 1950, dollar cost averaging is performing worse than a lump sump ...
4
votes
1answer
1k views

Historical volatility from close prices (Haug pg 166)

I have implemented a function for calculating historical volatility using close the close method as described by Haug on page 166. When I implemented the formula given by Haug, it resulted in some ...
2
votes
0answers
135 views

How to find the upper bound of a digital option given some market data?

Given the price of a call equals to 5 with Strike 100, please find the upper bound (sup) of the digital option with strike 105. I am not sure about the solution, but I write the condition like this, ...
-4
votes
1answer
680 views

How to calculate the weight of the stocks using the linear regression?

I do a simple example with the follow three series(stocks prices): ...
5
votes
1answer
13k views

How to interpret results of Johansen Test?

I have two time-series a & b. The objective is to find out whether two series are cointegrated or not. I am using Johansen Test in R to find this out. I am using urca package of R. Here is the ...
11
votes
3answers
489 views

What is a commonly accepted econometric model for volume?

What is the gold standard econometric model for volume? For example, a common model for price is the autoregressive (AR) model with GARCH(1,1) innovations. Do you know of any good survey articles ...
2
votes
0answers
85 views

Good Environment, Social, and Governance Indicators to correlate with financial performance of PE

I am trying to see if there is a correlation between the Environment, Social, and Governance (ESG) performance and the financial performance of Private Equity (PE) funds. Are there any suggestions ...
7
votes
1answer
494 views

How to model time series of illiquid stocks - 400 observations (transactions) per 8 hours?

How to model time series which are illiquid - 400 observations (transactions) per 8 hours ? Are there models suitable for this situation which incorporate not only size of the transactions but also ...
3
votes
2answers
350 views

Resources for Benchmarking Automated Trading Systems available as deltix etc.?

Is there some research resource/group working on benchmarking of software products out there with automated trading and goals of "Advanced alpha generation and execution strategies" incorporating low ...
6
votes
1answer
321 views

Measuring co-movement at non-constant intervals

Correlation measures how much two series move together over a fixed interval. Are there any techniques that measure co-movement over a variable time frame? One technique I am aware of is concordance.
6
votes
2answers
2k views

How does one go from measure P to Q(risk-neutral) when modeling an asset paying dividends?

I am really having a terrible time applying Girsanov's theorem to go from the real-world measure $P$ to the risk-neutral measure $Q$. I want to determine the payoff of a derivative based an asset ...
8
votes
1answer
389 views

Is there a closed-form solution for the partial autocorrelation function of a Markov regime-switching process?

Consider a Markov Regime-switching process $X_{t}$ with $k$ regimes represented by $s_{t}$ such that $$X_{t}=\mu\left(s_{t}\right)+\epsilon_{t}$$ and $$\epsilon_{t}\sim ...
5
votes
7answers
10k views

Exercising an American call option early

I have seen the rationale behind why it is never optimal to exercise an American call option early, but have a question about it. If the option strike price is $E=\$20$ and it expires at $T=1yr$, if ...
10
votes
5answers
814 views

Is it ever possible that---because of illiquidity---exercising an out-of-the-money option is better than directly buying the stock?

Is there a case, where due to illiquidity, exercising out-of-the-money options could be better than directly buying the stock? When a stock is too illiquid, there are some costs because of this ...
5
votes
1answer
300 views

What's the best way to test/validate an interest rate lattice model

I have some implementations of interest rate lattice models. I would like to verify their performance. What would be the best approaches? Currently I compare pricings of some interest rate dependent ...
3
votes
2answers
2k views

GJR-GARCH Model In R

Any idea how to estimate GJR-GARCH models in R? Is there any particular library like fGarch that supports such models?
9
votes
3answers
653 views

Which greeks do you need to hedge if you want to implement an implied-volatility security?

Assume you want to create a security which replicates the implied volatility of the market, that is when $\sigma$ goes up, the value of the security $X$. The method you could use is to buy call ...
4
votes
1answer
278 views

Reference on Electronic volatility trading [duplicate]

Possible Duplicate: Looking for a recommendation for a real life volatily trading book. I recently came in contact with a quant desk that traded volatility. The discussion only highlited my ...
0
votes
1answer
289 views

Where to find introductory material on leveraged loans?

What are some good, preferably free, introductions to leveraged loans, also known as syndicated loans or bank loans? The introduction should describe the basic mechanics and very importantly provide ...
3
votes
1answer
384 views

Cross Bid and Ask prices for Forex trading

I am using ITCH protocol to get the Market Data information for Forex and trying to implement LOB on it and what i have noticed is that Bid and Ask prices are crossing very often. Should that be ...
3
votes
2answers
341 views

How is someone's Sharpe ratio recorded and communicated?

When I read about, say, some hedge fund wanting people with such-and-such Sharpe ratio, how is that ratio recorded and communicated to the interested party? I mean, do people just take it on faith ...
5
votes
2answers
848 views

Is the binomial model wrong?

In the standard MBA one-period binomial model, the value of an option is $v = \frac{1}{R}\bigl(\frac{u - R}{u - d}V(sd) + \frac{R - d}{u - d}V(su)\bigr)$ where $R$ is the realized return over the ...
8
votes
2answers
4k views

How to build a mean reverting basket?

I have been playing with mean reverting pairs, but seems that most of the low hanging fruit (ie pairs) have been squeezed already. I would like to start with mean reverting baskets (>2 securities) in ...
7
votes
3answers
901 views

cointegration applied to Portfolio Construction & Risk management

There are all sorts of applications of cointegration to generating alpha on mean-reverting timeseries: comparing spot vs. futures, bond spreads, identifying mean-reverting residuals, etc. But there ...
9
votes
3answers
1k views

Implementing a Fast Fourier Transform for Option Pricing

So, I'm in need of some tips regarding a small project I'm doing. My goal is an implementation of a Fast Fourier Transform algorithm (FFT) which can be applied to the pricing of options. First ...
7
votes
1answer
318 views

When pricing options, what precision should I work with?

I'm wondering if there's any point at all in double-precision calculations, or whether it's ok to just do everything in single-precision, seeing how the difference on non-Tesla GPUs for single and ...
7
votes
2answers
1k views

HFT - How to define and measure latency?

I have read and heard a lot about latency. But I can't find any solid information that explains how latency is defined and measured. When people say they have achieved millisecond or nanosecond ...
4
votes
1answer
822 views

Can American options with no dividends and zero risk-free rate be treated as European?

Let's say you've got American options on a future of a stock index. There are no dividends, and no risk-free rate either (assume $r=0$). Can these options then be treated as European from the ...
3
votes
2answers
316 views

MPT: Adding constraint on minimum asset weight

I'm new to finance in general, and recently read about Modern Portfolio Theory. Now I'm wondering how to add the following constraint on asset weights: Each asset weight $w_i$ should either be $w_i ...
5
votes
5answers
11k views

Why use swap-rates in a yield curve?

I have a question concerning interest yield curves. Many institutions use the Libor-swap rate curve as a yield curve. Let's be precise and say that we want the yield curve to be the curve that gives ...
1
vote
0answers
634 views

Using volatility cycles to switch between trend following & range bound trading? [closed]

"...a low volatility environment is usually a good environment for trend following strategies; see Jez Liberty’s state of trend following report here..." ...
4
votes
1answer
211 views

How do brokers charge for locates?

Few quick questions on how locates work. How do brokerages charge for locates? They charge based on volume? How long you need the locate (I assume an one day is max)? Do the brokerages ...
4
votes
3answers
2k views

VaR implementation using quantlib?

I am thinking of writing a VaR framework for my existing system, using quantlib to do the bulk of the calculations. Despite several searches, I have not as yet come across a quantlib VaR ...
2
votes
1answer
156 views

Good reference on sample autocorrelation?

I'm not a statistician but I'm writing my thesis on mathematical finance and I think it would be neat to have a short section about independence of stock returns. I need to get better understanding ...
10
votes
2answers
479 views

Exploiting breakdowns in correlation of estimated volatility

In the attached image I have a plot of the rolling correlation of 90-day historic volatility (using the Garman Klass estimator based on Sinclair's Volatility Trading) of JPM v. the S&P. As can be ...
3
votes
1answer
685 views

What are some applications of bioinformatics or genetics to generating alpha in U.S. equities?

There are many disciplines that have contributed to how one model's risk and return. Physics introduced Brownian motion and RMT. Machine learning has helped to solve complex portfolio construction ...
2
votes
2answers
1k views

Resequencing of MsgSeqNum in FIX 4.2

I am trying to achieve the following functionality using QuickFIX for FIX 4.2 Send a couple of orders and make sure they’re filled. Then disconnect. Change the incoming (from Broker) sequence number ...
6
votes
4answers
2k views

Stock Price Behavior and GARCH

In my (limited) understanding, the behavior of a stock price can be modeled using Geometric Brownian Motion (GBM). According to the Hull book I'm currently reading, the discrete-time version of this ...
3
votes
0answers
367 views

Real time stock volatility

Is there any need for real time weighted volatility on a tick by tick basis for equities? If you had that access to that, what could you do with it?
7
votes
2answers
192 views

Is there an optimal covariance one would want forecasts to have?

Often in a quant process, one will generate a time series of return forecasts and use them in some sort of optimization to generate a portfolio. Generally, there will be a covariance matrix of market ...

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