1,402 reputation
818
bio website quantdevel.com/public
location Elgin, IL
age
visits member for 3 years, 5 months
seen Jun 27 at 1:26

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


Dec
3
comment Why is volatility mean-reverting?
@bill: Can you cite some reference for this hypothesis? I don't recall encountering this reasoning before. Also, those graphs are pretty, but they don't illustrate your thesis. Rather, they illustrate that implied volatility often rises when prices fall sharply... which seems off-topic.
Dec
3
comment Why is volatility mean-reverting?
Are you asking about realized volatility or implied volatility?
Dec
3
comment How 'High' is the frequency in HFT?
@zeliboba: That other post says nothing about trading 5-minute bars. It's all about tick-by-tick. As far as I'm concerned, the technology for trading 5-minute bars is easily accessible to individuals... although perfecting a profitable strategy may be tricky. Tick-level trading, by contrast, is probably out of reach for all but the wealthiest individuals.
Feb
9
comment How 'High' is the frequency in HFT?
+1 The Deutsche paper is very well written. Thanks for the link. BTW, I know smallish traders in the CBOT Building who are essentially co-located. It ain't cheap, but it doesn't cost an arm and a leg either.
Feb
7
comment Mean reverting strategies
@fRed For rolling futures, I use the standard techniques; see "A Compete Guide to the Futures Markets", for example. Yes, rolling contracts can cause several problems, including spurious cointegration. This mostly happens in physical commodities, where spot supply & demand problems can wreak havoc with the futures curve. Also, the spread has its own contango and backwardation, and you need to watch it carefully. Spread profits can evaporate when futures expire and you roll your positions forward.
Feb
4
comment Trading a synthetic replication of the VIX index
@shane I accepted this answer because the discussion helped me sort out the realities of the situation. Thanks for your observations.
Feb
3
comment Why does the VIX index have *any* correlation to the market?
In my experience, put/call parity can get out of whack (if only because of frictional costs) when demand for one side exceeds the other. I've seen the imp vols eventually converge, despite the demand imbalance, so IV rises. This is anecdotal, however. I've no hard evidence here.
Feb
3
comment Mean reverting strategies
@fRed Thank you! Yes, that is a very interesting model of mean reversion. I've been searching for a model like this. I'll be implementing it very soon.
Feb
3
comment What is the role of stochastic calculus in day-to-day trading?
Great answer, Shane. It reminds me of Wall St quants talking about "model arb": my model prices better than your model, so I can make a profit by trading with you opportunistically. But, again, that's for the Big Boys on the Street. Your answer nicely highlights that. Thanks for the references, too.
Feb
3
comment Why does the VIX index have *any* correlation to the market?
It doesn't matter if the demand is for calls or for puts. Due to put/call parity, demand for either drives up the implied vol for both.
Feb
3
comment Trading a synthetic replication of the VIX index
@shane LOL ... literally.
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
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
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
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?