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).

108 questions with no upvoted or accepted answers
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296 views

Is there a relationship between Risk Neutral Pricing framework and Nash Equilibria?

Based on the Fundamental Theorem of Asset Pricing, the risk neutral price of a contingent claim on an asset in a liquid, arbitrage free market can be determined by switching to an equivalent $Q-$ ...
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637 views

Questions on Kelly criterion

I am new to asset allocation problems and have some concerns regarding the derivation of the continuous-time Kelly criterion (i.e. not the original version destined to discrete sports betting/Casino). ...
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104 views

Machine learning - assigning a value to each tradable moment

I've been looking at machine learning trading strategies for some time and realized recently that I've been neglecting a very important part of the equation in terms of training an effective model. In ...
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2k 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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220 views

Assets cointegration: optimal inventory for futures market

I'm interested in HFT cointegration stratagies, and recently found interesting article "Algorithmic Trading of Co-Integrated Assets" The article describes mean-reversion strategy for N-assets. ...
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121 views

How does one simulate intraday strategies which don't end up flat at the close?

I ran into this trying to simulate trading interlisted names between the NYSE and the TSX. Depending on my strategy parametrization it would sometimes end up with a significant short or long dollar ...
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371 views

Calculating index arbitrage

I have a days-worth of level 2 market data. I am calculating S&P500 index arbitrage. I have a few questions about the calculation: 1) Should I be summing all the bids and asks from the stocks ...
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80 views

How to monetize ability to predict small stock movements smaller than spread?

For a relatively small subset of stock symbols I have been able to build a model that is able to 20-100 times per day consistently predict whether a stock is going up within the next 2 minutes, being ...
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90 views

Realistic Modeling of Capacity in Backtesting a trading strategy

Typically the backtest of a quantitative trading strategy assumes a fixed period and fixed capital at the start to backtest a strategy. However, each strategy has a capacity (due to non-linear trading ...
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1answer
156 views

evaluating garch models

I used ugarchroll to backtest my garch model on S&P returns this is my code ...
3
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1answer
85 views

Exposure/Factor Analysis on a loan portfolio?

I am working on performing factor analysis on a loan portfolio. This is my understanding so far, and I was hoping that some of the smart folks here might be able to chime and guide me through this ...
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57 views

Dealing with missing factors

I have to deal with a factor investing strategy, with the particularity that I can't get a value for the factor for each date for each stock. Practically speaking, this is due to the fact that this ...
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97 views

Backtesting: what happens to real-executed order if mine fills instead?

I'm writing a backtester and using an order-by-order Nasdaq ITCH feed whilst testing it. Let's say the bid-ask spread is 100 @ 9-11 @ 100 My strategy inserts an bid order for 100 @ 10 and this ...
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668 views

Rationale behind volatility dispersion (or correlation) trading

When looking at the explanation of CBOE S&P 500 Implied Correlation Indices available here, it is written that such indices: [...] "may be used to provide trading signals for a strategy known as ...
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488 views

Can a stat arb alpha be a global macro alpha?

In academic literature, "statistical arbitrage" is opposed to (deterministic) arbitrage.[1] In deterministic arbitrage, a sure profit can be obtained from being long some securities and short others. ...
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170 views

reconstruct LOB from NASDAQ ITCH -how to handle market price order

I am trying to reconstruct the limit order book from the NASDAQ Historical TotalView -ITCH data. After I decode the raw data, I can successfully generate whole messages flow from ITCH data. However,in ...
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100 views

Trading rules from automated search

I after talking to a research fellow, researched about trading rules from automated search. I found in the book Finding Alphas by Tulchinsky a general chapter, ...
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88 views

How to trade risk-adjusted returns?

Why does dividing daily returns by daily range eliminates fat tails and results in an (almost) gaussian distribution? And how could that distribution be exploited to enter trades?
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1answer
127 views

Can alpha be positive if cumulative returns underperform the benchmark?

According to my portfolio analysis program (pyfolio), the alpha of the following strategy is .17 (I am assuming 17%). [Based on pyfolio documentation, alpha here is the "annualized alpha".] ...
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43 views

The discontinuity when applying the combinatorial purged cross-validation

In Marcos Lopez de Prado's book, Advances in financial machine learning, he recommends using the combinatorial purged cross-validation(CPCV) for backtesting. His motivation is sensible. Through the ...
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104 views

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 ...
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119 views

Meta Labeling for trading opportunities

In Advances in Financial Machine Learning, Lopez explains how we should build a primary exogenous model (binary classifier) to identify trading opportunities and a secondary meta model to filter out ...
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70 views

What are some special trading phenomena that would be interesting to research?

I'm looking to research special trading phenomena like end-of-month bonds activity, daily closing imbalances in cash equities, futures expiration/settlement manipulation (like in VIX) etc. What are ...
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110 views

Johansen cointegration Test for spread generation

I'm using the python statsmodels version of the johansen cointegration test and I'm looking for some advice on how best to generate the spread used within a pairs trading algorithm. For example I've ...
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275 views

Calculating % Return in Pairs Trading Strategy

Hi guys Could you help me here? I would like to calculate the return of a Pairs Trading strategy. For example: 18/11 - Open the Trade: I will go long on A and Short on B: Stock A : $ 32.24 Stock B ...
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47 views

Are there any known text analysis NLP bots that read 8k filings, news, twits, articles - “understand” them and trade based on their derived meaning?

I want to build an NLP bot that "reads" and understands meaning and sentiment of articles, twits and trades on them. E.g. understand general sentiment of comments under important financial blog posts ...
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79 views

When to remove a trading strategy?

Every strategy has a limited lifespan. How do you decide when to stop a particular strategy as it has lost its edge? Few of things that can be thought is strategy crossing its maximum drawdown, net ...
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104 views

Kingdom of Denmark Nikkei put warrants

I have read in a book from Emanuel Derman that Goldman Sachs manufactured a derivative in the early 90's that consisted of buying cheap puts on th Nikkei index (and paid in Yen), combined them which a ...
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109 views

how to avoid building a strategy that depends on very long trends

When I construct a strategy, it is easy to make subtle dependencies on trends that have existed for a long time. Sometimes it is legit to explicitly take advantage of the trends. For example, it has ...
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112 views

Yield Curve Trading Strategy Explaining Books

Recently I really enjoyed being here while getting great recommendations. Would like to thank you all. Could you please recommend some books/papers on trading strategies, lets say yield curve ...
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505 views

How to calculate “Differential Sharpe ratio”?

Instead of using the "sliding the time window" method of calculating the sharpe ratio under online framework, they've defined "differential sharpe ratio" as such But under equation 5, you can ...
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211 views

Arbitrage from ATM option trading?

So I was testing out a collar options strategy (long put, short call, and long shares of the underlying stock) in a backtest for a school finance project, and the profits & losses are given by the ...
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196 views

Exotic derivatives - Replication

I would like to replicate the payoff Max(0, Min(S1, K) - S2) with a combination of the following derivatives: -> option on S1, strike of our choice -> option on (S1-S2), strike of our choice -> A ...
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517 views

Approximating Market Making PnL with a Trend Following Strategy

In an interview about the setting up AHL Michael Adams made the following quote (the quote relates to their pre AHL days when they acted as consultants): I think because we we re doing work for ...
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139 views

Need some suggestion about short vxx long vx future strategy

I read a post by M. Avellaneda trading volatility At page 59-62 there's Strategies with VIX futures to hedge short VXX I'd like to reproduce the result. I am not sure how to do it. Some key points ...
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66 views

Reduced rank / matrix factorisation techniques and their uses in portfolio optimisation?

I am interested in reduced rank / matrix factorisation techniques and their uses across finance and portfolio optimisation. For example, PCA might be used to reduce the number of components you are ...
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374 views

Trading strategies for increased realized volatility

Suppose once every 2-3 weeks I have a way to select a few equities that are likely to exhibit higher realized volatility in the future month (relative to the past month). Historically, the average ...
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389 views

cointegration strategy

If it can be proved that two time series $$S_t^1=\alpha + \beta S_t^2 + \xi_t$$ representing stocks are correlated, with $\beta=-2$ and then are proved to be cointegrated, how a portfolio should be ...
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67 views

Literature to Learn about Different Instruments

What is a good source of literature to learn about the specifics of various instruments that are traded? For example, suppose I wanted to know more about MBS's, i.e. how exactly they are securitized, ...
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106 views

References about market neutral portfolios that isolate unsystematic risk

I am looking for references, information, backtests etc. about market neutral portfolios that go long the index and short stocks of that index with high unsystematic (idiosyncratic) risk. The idea is ...
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2k views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
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142 views

seasonality and generalized additive model

I am reading a report which talks about seasonality. There is a chart showing the average returns for each month of the year. In the chart it appears the last 3 months of the year tend to be negative. ...
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74 views

robust regions in grid search

I have a strategy f that takes parameters x,y (for x,y taking values in integer ranges). I get two grids (of returns and volatility values) from computing f(xi,yi) for integer ranges x1 <= xi <= ...
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291 views

trading strategy outperforms passive strategy in absolute terms, but in returns vice versa. how could this be?

Background: I want to compare two trading strategies in term of profitability. The red one is an active trading strategy, which involves many entry and exit to a specific market. The blue one is a ...
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388 views

Fluid dynamics for order book depth modelling

Would someone be able to give me an idea what type of fluid dynamics I could look at for modelling the order book? My background is more signals-related maths (correlation, covariance, fourier etc). ...
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28 views

Combining multiple securities' Net Asset Value time-series into one total NAV series

I have a number of individual securities that each have a Net Asset Value (NAV) time-series. For example: ...
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64 views

Forex trailing stops - better alternatives?

I've been pursuing the holy grail of trading, short term FX trading, using machine learning. I've experimented with a ton of strategies but mainly those revolving around holding each trade for a ...
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80 views

Is there a scientific significance to Fibonacci numbers in economics?

I am new to the field and have read popular articles on Fibonacci numbers, but I did not find it grounded in academic research and would love to know if there is a research basis for this and whether ...
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39 views

How does a hedge fund with market-neutral (relative value) strategy be discretionary?

I've been researching about the strategies that funds employ and I've learnt that there are funds out there that apply quantitative techniques in their analysis, employ relative value investment ...
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49 views

Looking for references on reinforcement learning in finance

I plan on using reinforcement learning for a research project. To be specific, I plan to define learning environments using market microstructure models whose solutions are well known and see if I can ...