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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Relative performance of StatArbs strategy

This is a more general question regarding the performance of statistical arbitrage strategies... Are there any studies done on the performance of a large set of StatArb strategies? I want to have some ...
6 votes
2 answers
4k views

Meaning of cross sectional rank

This paper mentions the concept of rank which is defined as cross sectional rank. For e.g. one of the alphas (#3) is (-1 * correlation(rank(open), rank(volume), 10)) 10 is just the number of days ...
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1 answer
76 views

Reference for Aggregated Temporary Price Impact

I am wondering if someone knows relevant literature on the joint temporary price impact. The temporary price impact here refers to the difference between the best ask/bid price and transaction price ...
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1 answer
158 views

Trading strategy with only knowledge of price increase/decrease?

Take a hypothetical model that takes a stock as input and outputs "up" or "down" indicating if the stock price will increase or decrease in a fixed time interval T. Assuming the ...
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60 views

Option Pricing From Strike Prices

I am currently learning about Put-Call parity as well as arbitrage-free pricing. I have faced following question. "find option prices for European plain vanilla call options struck at 110, 120, ...
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153 views

IDE to use for Python for Quant Trading [closed]

Dear Quantitative Finance Stack Community, Since many Quantitative propietary trading firms seem to be using Python over alternatives such as STATA. I have now decided to get myself familiar with ...
4 votes
1 answer
369 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 ...
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42 views

Marginal effect of asset in a strategy

Im trying to develop a stastical arbitrage strategy that depends on a universe of assets and in a brief way, they replicate some factor(s), index(s), etf(s), etc, and then trade residuals. So, after ...
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2 answers
8k views

How to calculate the log return of portfolio?

Suppose that we have five trades each day with these returns ($R_{day,trade}$) and we have 300 days in total: $R_{1,1}$, $R_{1,2}$, $R_{1,3}$, $R_{1,4}$, $R_{1,5}$ $R_{2,1}$, $R_{2,2}$, $R_{2,3}$, $R_{...
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Leakage and bias in XGBoost trading strategy

I apologize for my persistence, i'm on a course of study and doubts increase every day. My goal is "just" to code a profitable forex trading strategy with machine learning. I'm trying to ...
1 vote
3 answers
202 views

Good ways to approach this dynamic probability/expected value game

There are 3 coins labelled A, B and C. You are told that the coins have probabilities of 0.75, 0.5 and 0.25 of landing on heads but you don't know which coin has which probability. In order to ...
2 votes
1 answer
192 views

How to design a strategy whose PnL is proportion to correlation?

I'm reading about this correlation breakout strategy, whose pnl is proportional to $$E[PnL] \sim (\rho_{1D} - \rho_{2D})\sigma_1 \sigma_2$$ where $\rho_{1D}$ is the correlation of daily returns, and $\...
2 votes
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Competitive levels in Limit Order Books

I've been doing some research on electronic Limit Order Books (mainly equities) and I was wondering if anyone has seen a paper on how to compute competitive limit order prices. By competitive, I mean ...
2 votes
1 answer
305 views

How do you formulate trading ideas and strategies?

I have access to some tick data and Bloomberg data. Outside of data mining and hoping to find an economic rationale after the fact, what do you usually do to generate ideas before you look at the ...
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1 answer
158 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 ...
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1 answer
103 views

Average time it takes to test a strike?

My question can be confusing so it’s better I explain it with an example. Let’s say I sell a strangle. That is with call at +27 delta and put at -27 delta. With 30 days to expiration. Is it possible ...
2 votes
2 answers
691 views

How to calculate basic components like trend, momentum, correlation and volatility in Pandas(Python) [closed]

I am new to quant. finance and trying to calculate trend, momentum, correlation and ...
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1 answer
180 views

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 ...
4 votes
2 answers
173 views

How would you approach this positive EV and high variance betting problem?

My friend was asked this question and I’m curious as to how people would play. There are 15 cards face down on a table. You can draw any number, n, of them at random. You only see the cards you have ...
1 vote
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77 views

How can one, from regular predictions of high & low prices of a security, their variances and error covariance, construct a trading strategy?

Suppose I have an algorithm that provides a prediction of the daily high and low of some security n periods in the future, a confidence interval for each of these predictions, and the correlation ...
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1 answer
118 views

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 ...
1 vote
3 answers
304 views

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 ...
3 votes
2 answers
2k views

How to incorporate momentum in Ornstein Uhlenbeck to capture overshooting in financial markets?

In modelling asset prices, it is a good idea to model it using a fair value or target price concept. Recently Carr & Prado explored this idea to find optimal stop loss/take profit levels when the ...
1 vote
1 answer
197 views

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 . ...
1 vote
1 answer
206 views

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 ...
7 votes
1 answer
565 views

Time series strategy versus cross section strategy?

Suppose we have a universe of $n$ stocks, and for each time period $t$ we have $n$ predictions for their future returns. Now we can calculate the information coefficient for our predictions in two ...
1 vote
0 answers
112 views

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 ...
1 vote
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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 ...
2 votes
1 answer
189 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 ...
0 votes
2 answers
1k views

Corwin-Schultz estimator of bid-ask spread

I am reading a paper "A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices" cf.A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices The authors proposed ...
1 vote
2 answers
276 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 ...
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63 views

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 ...
0 votes
1 answer
433 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 ...
2 votes
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70 views

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 ...
1 vote
1 answer
93 views

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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96 views

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 ...
0 votes
1 answer
301 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 ...
2 votes
0 answers
109 views

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}...
7 votes
1 answer
2k 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?
2 votes
2 answers
615 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 ...
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71 views

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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216 views

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 ...
1 vote
0 answers
93 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 ...
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 ...
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65 views

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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179 views

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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95 views

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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2 answers
1k views

What are quant trading competitions besides IQC?

I am interested to participate quantitative trading competitions. I am residing in Singapore. The only quant trading competitions that I know are International Quant Championship (IQC) and SMU ...
3 votes
1 answer
132 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 ...
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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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