# Tag Info

15

If you need a primer covering various domains of math then Dan Stefanica's text will do the job. The text covers multivariable calculus, lagrange multipliers, black scholes PDF, greeks & hedging, newton's method, bootstrapping, taylor series, numerical integration, and risk neutral valuation. It also includes a mathematical appendix. If you want an ...

14

Ledoit and Wolf shrinkage methods ("Honey I shrunk the sample covariance matrix") Ceria and Stubbs - Robust optimization literature (2006) Stock & Watson (2002ab) - papers on large N small P estimation Rockafellar & Uryasev (2000) - "Optimization of CVaR and coherent risk measures" Sorensen, Qian, Hua - "Quantitative Portfolio Management" Ang ...

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Adapted from a joke about economists: A quant(financial engineer), a mechanical engineer, and a chemical engineer are shipwrecked on a deserted island. They are starving, and are tired of eating coconuts. They come upon a can of food on the beach.... The mechanical engineer says, 'let's wdge the can between these 2 palm trees and rig a branch to chop the ...

12

Big Picture Time-series variance is driven mostly by discount rates, whereas expected cash flows dominate the cross-sectional variance. These results are important because they highlight the value of focusing on both dimensions of stock prices and returns: time-series and cross-section. On the other hand, however, they also show that a single mechanism is ...

11

Investment bank Dog competition: A researcher, a risk manager and a trader each bring a dog to a competition. The first one to display is the researcher's dog. The researcher brought a bottle of milk a bowl and placed it all on the floor. Then he commanded the dog to take the bottle and pour the milk into the bowl until the maximum amount it could hold. ...

10

I doubt you will find one book that covers everything you need, but here are a few that I continually come back to whenever I have some questions on the mathematics. Analysis of Financial Time Series by Ruey Tsay An Introduction to High-Frequency Finance by Dacorogna et al Probability and Statistics by DeGroot and Schervish Statistical Inference by Casella ...

9

If you asked me for a single book as a starting point I'd probably go for: Frequently Asked Questions in Quantitative Finance by Paul Wilmott

8

Sure. The formula for vega (you probably recall) is $$v(\sigma) = S n( d_1(\sigma) )\sqrt{T-t}$$ The gaussian PDF, $n(\cdot)$, is strictly non-convex, having a local maximum at zero. There is therefore a corresponding maximum of vega occurring where the strike $K_\text{max}$ solves $$d_1(\sigma)=0$$ which works out to  K_\text{max} = S ...

7

I have only seen one framework that works in a research oriented development environment which is the spiral model. Using try agile methodologies is impossible because the frontier of tasks is not known. Agile is very useful for building/maintaining known applications with known functionality and problem spaces. It is not useful for research oriented ...

7

Grinold and Kahn (2000) remains the bible for people just starting to get into quantitative portfolio management. Some readers may prefer the treatment in Litterman (2003). Both of these, however, are thorough books covering all the foundational material. Most of the recent work in portfolio management has built upon the research covered in those books. ...

7

"Extreme programming" is a buzzword that has received a lot of hype in the past few years. However it's important to note that it's only one item in the long list of SW development philosophies and that it's not - contrary to its proponents' claims - a panacea. On the other side it's very beneficial to follow a few simple rules while writing even small ...

5

To see the connection between put-call parity and option price you should read this highly insightful paper by Espen Gaarder Haug & Nassim Nicholas Taleb: Option traders use (very) sophisticated heuristics, never the Black– Scholes–Merton formula It shows how you can heuristically derive option pricing formulas by adapting the tails and skewness ...

5

Both premiums are actually always positive by definition. The difference will be positive when the forward price exceeds the strike and vice versa.

5

The best way to do it is by getting an internship as an entry level analyst or some sort. They do not necessary expect you to know computational finance(they will teach you), though you need to be bright, have an outstanding academic record, and of course, good communication skills. As you get in there, you can then ask around about the specifics of what you ...

4

Theta Calculus, a system for representation of complex financial instruments. Kupper & Drapeau's unification of risk concepts. Several papers by Schmid, Bodnar, Okhrin on optimal portfolio weights and tests of same. For example, A test for the weights of the global minimum variance portfolio in an elliptical model. Similarly, Kan and Smith's work on the ...

4

I'd say to read Prof. Shreve's well-known two-volume textbook Stochastic Calculus for Finance I and II.

4

There are some Agile benefits that you will reap, even if you are the sole programmer. You may feel silly doing a scrum by yourself in the morning. But you may find it to be a benefit to plan what you would like to work on that day, and to think about what you might need that day (especially if you need to read about solving a quant problem). Planning out ...

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Average net worth of people at bogleheads forum is very strong argument. Also, Dogs of the Dow is interesting approach for long term investing.

3

Alpha is easier to measure and easier to obtain in the cross-section than in the time-series. Low information coefficient combined with high breadth still make for a decent information ratio. The breadth of your strategies is always lower than you think. When markets collapse, correlation goes to one.

3

As an agile developer and quant finance programmer, I think that unit testing is invaluable. Because you really never know if your code is doing what it is supposed to do without tests. How do you know that your code is calculating your proprietary indicators correctly? You probably ran your new code and checked the result against some other code or system ...

3

All books recommended in previous posts are splendid :-) I would like to add one more book for continuous time financial mathematics: Arbitrage Theory in Continuous Time by Tomas Bjork.

3

"Individual Craftsmanship"...I am not sure how you want to apply this skill set later. Craftsman to me means someone who simply applies a tool set, it does not imply (according to the dictionary definition) whether professionally to earn money or in order to teach or treat it as a personal hobby. So please let me comment on all three: Professionally in the ...

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Summary Answer: Those are interested to benchmark against indexes who sell such index products (pricing data, trade marks, rights to use and publish), and of course portfolio managers because they look generally much better when indexed against indexes than when being assessed through risk-adjusted returns. The general public is sadly just too uninformed to ...

3

The first reason is the answer to this question : should I bother invest in your fund and not simply invest in the S&P500 etf ? The second is : Are you a fraud ? If someone claims to use a long only strategy with stocks from the S&P500, you expect his fund returns to be correlated to the S&P500 to some extent. If it is not the case => fraud.

3

There are a few things: Non-cynical: Active absolute return managers tend to underperform passive benchmarks after fees. So if you can get a manager that can outperform a passive benchmark (perhaps who has a mostly passive strategy with some active tilts), then you are doing well. Your scenario of a portfolio dropping 48% is not realistic. Most asset ...

2

there is no stealing of data unless you delete it from the original source. Let me elaborate, as the semantics are very important here. Stealing, even with quotes around it, "Stealing" requires that something is removed from the original place. You steal car. You copy a file, as such data is protected via copyright when it can and other subsequent acts that ...

1

The vega is quite linear for ATM options. It's convex mostly for OTM and ITM. An intuitive explanation is that an OTM option with zero volatility will be worth zero. If you increase the volatility by 1% then most likely the price is still close to zero. Therefore the vega is zero (or tiny). Now if you increase the volatility sufficiently, clearly at some ...

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