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 ...
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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 .
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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}...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 (...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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_{\...
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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 ...
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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, ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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?
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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