Questions tagged [quant-trading-strategies]

Quantitative trading strategies use quantitative signals and a set of predefined systematic rules to make trading decisions. Strategies operate within parameters based on historical analysis (backtesting) and real world market studies (forward testing). Strategies may be executed manually (by a human trader) or automatically (by a computer).

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Market Makers how can they sell an asset they don't have

I'm having trouble grasping the operations of market makers. For example, consider Bank XYZ, which has set a bid-ask spread for T-Bond A at $90.1 (bid) - 90.2 (ask)$. Suppose a client of the bank ...
hjkhkjhjk's user avatar
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Trade Impulse signal

https://blog.headlandstech.com/2017/08/03/quantitative-trading-summary/ In reference to the link, under Market Microstructure Signals, the so called "Trade Impulse" signal was mentioned . ...
emptydoubleu's user avatar
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Multi level micro price

Typical micro price formula uses the top of book depth (i.e. level 1 depth): Microprice = (BidSize x AskPrice + AskSize x BidPrice) / (BidSize + AskSize) But how does one actually include more depth ...
emptydoubleu's user avatar
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1 answer
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Statistical Arbitrage, Avellaneda & Lee - Estimation of the Residual Process

I am trying to calculate the trade signal outlined in Avellaneda & Lee paper "Statistical Arbitrage in the US Equities Market". They describe their approach in appendix. Here is my ...
arkon's user avatar
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Combining many trading strategies in an efficient

I have a lot (>50) of back tested (and naively "validated") trading strategies. They trade different ETFs, mostly equities, but also others (like GLD, USO, ...). These are all strategies ...
user947967's user avatar
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51 views

Lopez de Prado Advances in Financial Machine Learning- entropy for adverse selection

In chapter 18: Entropy Features, Lopez de Prado discusses how entropy can be used to estimate adverse selection. He suggests a method where order imbalance is mapped to quantiles and entropy is ...
Cameron's user avatar
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1 answer
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Clustering of Maximum Drawdown Values in Monte Carlo Simulations (Jaekle & Tomasini example)

Hope this question isn't too naive. I've been trying to replicate the Monte Carlo method using sampling without replacement as described in the Jaekle & Tomasini book (Trading Systems: A New ...
djhanson's user avatar
1 vote
1 answer
131 views

Theta using black scholes when time to maturity approaches 0

When time to maturity tends to 0, like on expiry day, denominator $\sqrt t$ in becomes 0 and the first term in the formula becomes large enough to make theta of the contract more than its premium. How ...
PG1's user avatar
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Combination of bid ask of two instruments

You have 2 instruments: X in which you are quoting 35 @ 40 and product Y in which you are quoting 15 @ 30. We want to make a market on the product X+Y. What is the bid-ask spread you will quote? Got ...
Kai's user avatar
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1 answer
280 views

Options market making process (step-by-step)

What are the steps involved in options market making? Does it roughly follow this procedure: Choose a pricing model, e.g. Black-Scholes. Calibrate the model, e.g. Volatility. Quote a bid-ask spread ...
FISR's user avatar
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2 votes
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Variables for predicting price impact

Can anyone please recommend papers(other than Frazzini, 2017) that recommend market variables or any other predictors to model temporary price impact when you buy / sell a trade? This would fall under ...
Omni's user avatar
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How is Open Interest calculated?

(More specifically on crypto exchanges) If traderA opens 1 long and traderB closes 1 long, thus delta Open Interest is 0. Then what if traderA opens 1 long, and traderB opens 1 short, is delta Open ...
kpeteL's user avatar
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Relationship between holding time and sharpe ratio

Let's say, for simplicity, I have a long-only portfolio $P$ that consists solely of equity. The average holding period for each asset is $n$ days. Are there research papers or theorems that ...
hjkhkjhjk's user avatar
0 votes
1 answer
176 views

Difference Between Option market price and Theoretical price? [closed]

So I am working on strategies that depends on the difference between Actual market price of option and price derived using black and scholes model. For eg: Spot 19000 , strike 19200 . It is OTM call ...
Nikunj Guna's user avatar
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0 answers
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Estimating Parameters of Optimal Posting Strategy from "Enhancing Trading Strategies with Order Book Signals"

I'm reading the paper “Enhancing Trading Strategies with Order Book Signals” by Cartea et al (2015). And I have the following questions: Assume that I empirically estimated $\lambda^{l}, \lambda^{\pm}...
envy grunt's user avatar
1 vote
2 answers
181 views

Expected slippage based on % of average daily trading volume

I have started a quant strategy that buys and sells thousands of stocks. Each trade represents <1% of average daily trading volume. On average, the trades represent around 0.1% of ADTV. What is a ...
helloimgeorgia's user avatar
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In grid trading, is a fixed price level grid equivalent to a dynamic grid?

I am trying a grid trading bot that shifts the grid around the current market price within a minimum and maximum price. I lack context on how such strategy compares with a fixed grid centered around a ...
OneArb's user avatar
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Quantitative trading strategies with a focus on low-frequency dislocations

I am looking for references that are specific to quantitative trading strategies that exploit low-frequency dislocations in markets, which lend themselves as overlays for a strategic asset allocation ...
Hans-Peter Schrei's user avatar
5 votes
1 answer
2k views

What does EUR 5y2y-7y3y-10y5y mean?

In this research piece, one of the trades on Page 31 is Pay EUR 5y2y-7y3y-10y5y. What is the meaning of this notation? I guess it is a fly trade on three forward rates, but it is confusing that the ...
Bravo's user avatar
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PCA 'unnormalize' weights

When computing a PCA on several prices, we usually normalize them first. Let's say I got the weights (eigenvectors) for the PC5. This weights are made from normalized prices. If I believe PC5 is too ...
Felipe Cancela's user avatar
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trailing Stop Calculation for a strategy

I have converted pine script (UT-Bot by Yo_adriiiiaan) strategy to python but facing some errors. It requires TRA calculation and trailing stop calculation. Problem is that ...
user3696623's user avatar
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Input/References on Generating Exit Signals for Positions that Profit Very Highly from Extreme and "Unpredictable" Events?

For focus, let us restrict the scope of this to vanilla options-based positions/strategies. In a lot of the accounts that I've seen of those that engage in this sort of investment/trading strategy (...
QMath's user avatar
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3 votes
1 answer
122 views

Is the Gittins index useful in determining when to change an investment/trading strategy?

I've been reading about multi-armed bandits and the explore/exploit trade-off that can be solved with dynamic allocation indices such as the Gittins Index Theorem. Could this be applied to when to ...
LattePrincess's user avatar
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80 views

Any document about general backtesting algorithm and data structure

(Note there are similar questions, with different focuses at this forum, but my focus is more on the general concept, if any, about backtesting (for stocks) and sources of information where I can go ...
Dino Hsu's user avatar
1 vote
1 answer
165 views

Is there a risk-neutral measure if there are two stocks with different drift terms?

There are two stocks: $S_t$ and $P_t$ $$dS_t = S_t(\mu dt + \sigma dB_t)$$ $$dP_t = P_t((\mu + \varepsilon) dt + \sigma dB_t)$$ Is there any risk-neutral measure? My thoughts are pretty simple: $μ$ is ...
nearhome's user avatar
3 votes
0 answers
75 views

Methods for tracking option open interest intraday

It is my understanding that open interest option values on financial websites are a reflection of a snapshot value each day. Is anyone aware of methods for estimating intraday open interest, or aware ...
skepticalforever's user avatar
3 votes
1 answer
254 views

Proper way to backtest strategy using bootstrap method

Should I back-test in a single (original) price series and bootstrap the strategy returns to get statistics of interest? Or should I create bootstrapped price series using bootstrapped returns from ...
Arun Lama's user avatar
3 votes
1 answer
246 views

How to compare algorithmic trading strategy risk/reward performance? [closed]

I am setting up different algorithmic trading strategies with varying performance characteristics. I am new to this. The strategies vary greatly with their aggressiveness. I would like to find a way ...
Mikko Ohtamaa's user avatar
2 votes
2 answers
188 views

Is there a commonly accepted way to leverage the granularity of high frequency data while working within the constraints of lower frequencies?

Apologies if this is not the correct forum for this question. Access to high frequency data (trade data, quote data, limit order book updates, etc.) is currently relatively easy through various public ...
QMath's user avatar
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2 votes
0 answers
106 views

Linear Regression Cointegration Strategy

When doing linear regression to figure out the hedge ratio for the cointegration relationship what does it mean if the residuals are stationary but end up looking like the price time series of y? How ...
Deepankar Joshi's user avatar
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53 views

Hurst Exponent and Smoothed Hurst Exponent values are the same and incorrect plotting

I'm working on a script to calculate and plot the Hurst Exponent and Smoothed Hurst Exponent for a stock's historical price data using Python. When I run the script, I face two major issues: The ...
QuantDuckling's user avatar
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0 answers
100 views

What is the margin requirement for a dollar neutral long short portfolio

I have been working on a market neutral pairs trading strategy. See https://medium.com/@nderground-net/backtesting-a-pairs-trading-strategy-b80919bff497 I am trying to understand whether I am properly ...
iank's user avatar
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0 answers
66 views

Trading options - risk adjusted return

I have often wondered what kind of risk restrictions do traders of options in Hedge funds have but have not managed to find any information on this matter. I presume there must be some kind of measure ...
fwd_T's user avatar
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0 votes
1 answer
104 views

Difference between Trader Behavior and Analysis/Inference

In the academic literature - often "momentum" and "positive feedback" traders are used interchangeably. Like "Most researchers have found that institutional investors are ...
shoonya's user avatar
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0 votes
1 answer
508 views

Micro Price vs multi-level micro price

Why do we use the micro price $$p_m = \frac{B_{\text{size}} A_{\text{price}} + A_{\text{size}} B_{\text{price}}}{ A_{\text{size}} + B_{\text{size}}}$$ rather than fixing $A_{\text{size}}$ and $B_{\...
iqaj's user avatar
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1 vote
1 answer
117 views

Optimal leverage for strategy with normal returns

Given a strategy with normal returns with mean 5% and standard deviation 10% what is the optimal leverage (up to a maximum of 2x) to maximize the expected wealth? With the same setting, if trading is ...
Mattiatore's user avatar
1 vote
0 answers
55 views

Value: High-minus-low factor fama french - transaction costs

Anyone know any references on how to estimate transaction costs for a give trading strategy? In more specific terms, if I want to estimate the returns on an HML value strategy as in Fama-French 1993, ...
phdstudent's user avatar
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Academic literature on quantitative trading [duplicate]

I’m looking for an academic paper (a survey) on quantitative (algorithmic) trading. Not for a list of resources, a survey on popular strategies,history and so on. Those that I came across are heavily ...
Stany's user avatar
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4 votes
1 answer
319 views

Continuous prediction vs Event-based predictions

When making a high-frequency or mid-frequency prediction on an assets return, what are the advantages and disadvantages of making a continuous prediction vs a prediction that only fires on a ...
mr_mm's user avatar
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1 vote
0 answers
191 views

What is an algo wheel and where can I find references?

The term "algo wheel" has been flying around for some time yet I have yet to find a consistent definition. It obviously has to do with making trading strategies more comparable, but where ...
vonjd's user avatar
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5 votes
2 answers
276 views

Model is economically significant, but has negative $R^2$?

I'm reading a paper by Rama Cont that says (Page 25): We remark that negative R^2 values do not imply that the forecasts are economically meaningless. To emphasize this point, we will incorporate ...
Thomas Johnson's user avatar
2 votes
0 answers
175 views

How momentum factor is calculated?

I got following code from the Quantopian Lecture about factor investing. Following is calculating momentum factor. Earlier in the lecture, instructor told that, we will sort the securities based on ...
Validus Oculus's user avatar
1 vote
0 answers
87 views

Questions on constructing WML factor (Fama French)

https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html We can see that the Winner and Loser portfolios are determined by the cumulative return from t-12 to t-2. To construct the WML ...
Yoosang  Lee's user avatar
7 votes
1 answer
1k views

Online sources for quantitative finance research

What are the sources one can search for or view / download research articles and other publications on quantitative finance in addition to the Internet search engines?
Alper's user avatar
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0 votes
0 answers
165 views

PCA on levels or returns, and standardized or not?

When you run PCA on some financial assets, let’s say stocks, do you calculate covariance on levels, standardized levels, returns or standardized returns? I’ve seen several papers and posts that ...
Nick's user avatar
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1 vote
2 answers
314 views

Role of Intercept In OLS Beta Estimation

I am constructing a classic pairs trading strategy in which I use a linear estimator to model the spread of two assets opening a long-short market neutral position during times of divergence. I am ...
James VanLandingham's user avatar
2 votes
2 answers
468 views

W-shaped Event Vol and Butterfly Arbitrage

I came across the Vola Dynamics page about the W-shaped vol before an event: https://voladynamics.com/marketEquityUS_AMZN.html I'm a bit confused by "this term does not have any butterfly ...
Michael's user avatar
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1 vote
2 answers
226 views

I can’t understand why the premium of two butterflies with same strike but different broadness are approximately the same

Consider the following premiums of calls option with different strikes. C90 = 57.35 C95 = 52.55 C100 = 47.3 C105 = 42.9 C110 = 38.25 In this case, the butterfly 90-100-110 cost 1 and the 95-100-105 ...
Alexandre Borel's user avatar
1 vote
1 answer
145 views

Scaling in and out of a strategy [closed]

I have developed a fully automated crypto trading strategy for which has been showing promising results and I am now looking to raise money to expand and hopefully trade to its full capacity in the ...
Jabran Zahid's user avatar
0 votes
1 answer
277 views

Optimal leverage for short-only crypto strategy

I have the following strategy Instrument : crypto pairs (50 coins) short only ,Markets : spot and futures (isolated margin account margin sell (for spot) and futures on Binance) ,Frequency : ~5-10 ...
Jabran Zahid's user avatar

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