1,362 reputation
618
bio website quantdevel.com/public
location Elgin, IL
age
visits member for 3 years, 2 months
seen Mar 8 at 3:12

Quantitative developer, writer, instructor, private trader, so-so musician


Feb
3
comment Trading a synthetic replication of the VIX index
@shane LOL ... literally.
Feb
3
answered What are the key risks to the quantitative strategy development process?
Feb
3
comment Trading a synthetic replication of the VIX index
@shane Thanks, Shane. At this point, I think an experiment is in order. I will simply trade my proposed synthetic on a (very) small scale, monitor the results, and hope to learn from the outcome. In the words of Robert Stovall, "Selling a soybean contract short is worth two years at the Harvard Business School." It's time to get some hands-on experience.
Feb
3
asked What is the role of stochastic calculus in day-to-day trading?
Feb
3
comment Why does the VIX index have *any* correlation to the market?
@arjen-kruithof Thanks, Arjen. Your answer is far more eloquent than mine!
Feb
3
comment Who has introduced the term 'vega' and why?
@barrycarter <headslap> Of course! Google Book Search -- I shoulda thoughta that! Thanks for looking into it.
Feb
3
comment Trading a synthetic replication of the VIX index
@shane Nice work! Thank you for such a detailed reply. I've seen the VIX Fix before, and I like it for markets where no one publishes the daily implied volatilties. The problem here is that I cannot trade the VIX Fix either, just like I cannot (directly) trade the VIX itself. I'm looking for a tradable synthetic, leading to opportunities for spreads and out-right positions.
Feb
3
comment Trading a synthetic replication of the VIX index
@richardh According to my calculations, VXX has an 80% correlation with the spot VIX index... and their returns are only 44% correlated. I suppose VXX would be better than nothing, but I am exploring the alternatives and looking for a smaller tracking error.
Feb
3
comment Trading a synthetic replication of the VIX index
@barrycarter My goal here is to replicate the spot index. The futures track the forward VIX. The synthetic futures (VIX options) track the futures and, hence, the forward VIX, so they won't replicate the spot, either. The spot index is much more volatile, so my hope in replicating the spot is to create new, profitable opportunities in trading and arb'ing.
Feb
3
awarded  Commentator
Feb
3
awarded  Scholar
Feb
3
accepted Hedging stocks with VIX futures
Feb
3
comment Hedging stocks with VIX futures
@barrycarter Thanks for your comment. I'm accepting this as the answer because this dialog woke me up: there is no quick answer to my question. I'll need to dig in, explore the relationship between my portfolio and the VIX futures, build a model, and construct the hedge. Time to roll up my sleeves.
Feb
3
comment Hedging stocks with VIX futures
@Jura25 No worries. It's no crime to remind me there is a simple solution to my problem! Thanks.
Feb
3
asked Trading a synthetic replication of the VIX index
Feb
3
comment Is there any theoretical basis for pattern-recognition strategies?
When you say "pattern recognition", are you asking about traditional technical analysis, or are you asking about statistical pattern recognition techniques such as CART, recursive partitioning, kernel regression, support vector machines (SVMs), etc?
Feb
3
comment Why does the VIX index have *any* correlation to the market?
@barrycarter Really? Are dividends (and reinvestment) included in the S&P500 calculation? I thought Standard and Poors just calculated an average price weighted by market capitalization. Did something change?
Feb
3
answered Why does the VIX index have *any* correlation to the market?
Feb
3
comment How does pair trading work?
I'm not certain that all quantitative trading of pairs involves cointegration. There can be other, quantitative reasons to trade a pair. For instance, I trade the crack spread: the 3-way spread between crude oil, gasoline, and heating oil futures. Those spreads get out of whack, creating trading opportunities, and we can fully quantify the relationship. But the futures are not cointegrated.
Feb
3
awarded  Supporter