Questions tagged [strategy]
The strategy tag has no usage guidance.
83 questions
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If I gave you 100 million dollars for 3 years, what would you do? What if it was 3 days? [closed]
Just looking for some advice on a recent interview question I got for a junior quant trading role. In particular, I was asked by this quant trading/market making firm:
If I gave you 100 million ...
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How can well-documented phenomena with predictive implications for pricing exist?
This is a general question. I will give an example:
The cross-sectional seasonality effect is the phenomenon where assets' average past returns during specific time intervals (e.g., same weekday) ...
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Interview question: strategy with perfect R2
I got a question in an interview, not sure if I got it:
‘’’
We trade stocks and futures, and you can both long and short for futures. Assume you built a perfect quantitative trading model with perfect ...
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Sharpe ratio 1 and probability to lose money
I came across the following interview problem and I am looking for a possible solution. We have a strategy with risk free return 0 and sharpe ratio 1. What is the probability to lose money over four ...
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How to Control for longer term trends in an asset against an intraday strategy?
Say I have a simple S&P500 intraday strategy that buys at open, close at noon.
What are some good methods for controlling for the fact that the S&P500 tends to move higher over the long term ...
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Colosseum Fight - A probability problem
Problem Statement : Alice and Bob are in Roman times and have 4 gladiators each. The strengths of each of Alice's gladiators are 1−4, while Bob's gladiators have strengths 4,5,9, and 12. The ...
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Is the self-financing condition necessary/"useful" in practice outside of replication/valuation?
I know that the need for a portfolio/strategy to be self-financing (the purchase of a new asset needs to be funded by selling of an older one/ones) is very helpful when attempting to price derivatives ...
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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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Maximum profit from trading on a random walk with a specific strategy
My question is related to this thread, but I'm interested in a special case. Suppose that the price of an asset starts at 100 USD, and changes according to a geometric random walk; one step of 1% ...
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In the CRR model, describe the strategy replicating the payoff $X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$ [closed]
In the CRR model, describe the strategy replicating the payoff
$X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$
$X$ consists of two parts:
European call option with strike price $K$ and expiration ...
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Differences vs ratios
High, I am working on an exercise which involves performing a regression analysis to predict market direction (e.g. up or down). I am using daily OHLCV data. I've created various factors from the ...
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Relative Strength in Altcoins compared to Bitcoin
I trade stocks using relative strength analysis compared with S&P index. I was wondering if crypto traders do the same compared with Bitcoin price %change. These coins had a higher %gain than btc ...
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Workflow in algorithmic strategies
Sorry for the basic question, I'm trying to educate myself on algorithmic strategies.
Just to see how it works, my idea is to create a simple moving average strategy.
Let us suppose I have $N$ ...
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Question in convex arbitrage [closed]
In convex arbitrage, we say that if the convexity of call(put) price as a function of the strike is violated, we can have arbitrage strategy. For instance,
$$
C_{K_2}\geq \lambda C_{K_1}+(1-\lambda) ...
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Market neutral strategy with quarterly futures and perpetual swaps?
What is a "perpetual swap"?
In cryptocurrency exchanges, there is a financial product called "perpetual swap". (It is also called as "perpetual futures" or "...
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Optimal investment strategy problem with competing bet-sizing options and limited budget
Apologies for a potentially naive question and unusual wording. I am from another field and would be very grateful for help!
I am looking for the optimal investment strategy that maximizes an overall ...
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Comprehending Corr heatmap from multiple trials of investment strategy (Paper)
Can someone please explain the heatmap of Corr from backtests in this research paper ?
A Data Science Solution to the Multiple-Testing Crisis in Financial Research - Lopez De Prado (2019) - (Exhibit #...
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What are different types of response variable we can consider while developing quant model
I was trying to understand the response variables used in the quantitative trading/investing model development. This question may not look good but I searched on google and could not find results. ...
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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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Cumulative returns are more correlated than non-cumulative
I was just comparing two daily returns series and noted that the correlation between them is a lot higher if they are cumulated (about .95 for cumulative returns, vs .15 for non-cumulative). I feel ...
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Market neutral without short selling
Would it be possible to design a market neutral strategy without short selling?
According to Investopedia:
Market-neutral strategies are often attained by taking matching long
and short ...
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Basics of trading strategy development
I am Computer engineer and I know programming in python, go-lang, C++, I am interested in trading, I know how to make system to get data, send orders, back-test, fault-tolerance system, etc
I have ...
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Black-Scholes Delta value at maturity?
Having to implement a replication strategy for European options, I encounter the following problem:
Delta tells me how many shares to hold at time t in my replication strategy. To do so, I simply ...
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Rigorous proof that volatility target strategies actually tend to the target
I'm working on a paper about volatility timing and target strategies, practical implementation included.
While writing down the mathematical description of the model I wanted to include a rigorous ...
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Adjusting volatility while constructing portfolio
I am trying to construct a portfolio based on a macro momentum strategy for backtesting purposes as outlined in https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/A-Half-Century-of-Macro-...
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Is there a way to figure out "hot" strategies?
Apparently, short vol strategies have gotten crowded, according to the recent Bloomberg piece. When I read this, I thought how about factor based strategies -- value, growth, etc.? Aren't they ...
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Custom benchmark construction (S&P500 + add-on)
If I have a strategy that has the same risk as S&P500 but also requires 150 bps on top of S&P500 Index, how would I construct such a benchmark?
I have the following approach, but it is not ...
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If price is a random walk, is ok to use the binomial distribution to estimate a trading strategy?
Is it OK to assume a trading strategy should have a binomial distribution if the price is just a random walk?
using p of the event as:
$$\frac{AverageStopLossPercent}{AverageStopLossPercent + ...
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R squared of a good Trading strategy
What would you consider a decent R square value of a good trading strategy.
I know R squared is not a good metric for judging trading strategies but still at an initial stage how do you decide to ...
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Why should a self-financing strategy be previsible?
There is an amazing answer on mathematics stackexchange which defines what a self-financing strategy is—both in the discrete and continuous sense. Please check out this short answer to better ...
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Why not just be long VIX and wait for the next volatile period?
Over the past 3 months, VIX has been relatively low. Therefore, there seems to be a "free-lunch" here by just being long VIX, and wait for the next market turmoil (which is happening at the moment ...
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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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Strategy if dividend is lower than expected
Here is a question I encountered:
In 2009, a trader believes that dividends for a stock in 2011 will be
lower than expected, what is the best strategy among: long/short 2010
forward, long/short ...
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Strategy for implied volatility
I encountered this question:
"A trader observed that the implied vol of OTM calls and puts are higher than that of ATM option, what is the best strategy among: Calendar Spread, Bull Spread, Bear ...
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Why Good forecasting != Good trading? [closed]
In AI for algorithmic trading: 7 mistakes that could make me broke the author talks about why good forecasting cannot equal good trading based on the strategy selected. While reading the article I ...
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Why "profit factor" is used to compare trading strategies?
A lot of books/articles/trading forums mention that "profit factor" is probably the most important measure and should be used to compare different trading strategies. They define profit ...
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Seagull Spread payoffs
I'm looking at different option strategies and the ways that their payoffs differ (and therefore how they can differently be used).
I'm looking at the long seagull (buy a call spread and sell a put), ...
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Is forex trade set up where profit target is twice as far from stop loss is good strategy? [closed]
I was listening to this youtube video and the author is explaining that good way is to set up forex trades in a way where 10 pips in 'losing' direction (Stop loss) and 20 pips in 'winning' direction (...
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Methods to improve systematic strategies
Soliciting advice on ways to improve systematic strategies. Some things that I can think of off the top of my head:
Using a risk model (correlations) instead of 1/n or 1/vol weighting
Including a ...
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Option Strategy: Python Implementation Advice
I've been tasked to create and backtest an option strategy. The strategy, in vague terms, is to essentially write call options on securities in a universe, i.e., selling insurance.
I have an idea of ...
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Market Maker portfolio management
I am interested in articles/strategies related to portfolio and inventory management for market makers and to management of order cancellation, updates of order, etc.
Most of the strategies from ...
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What's the rationale behind having several orders on each each side for market makers
I've been browsing market making codebases and I've noticed most of them tend to create multiple orders on each side.
Originally I thought having orders on each side is an advanced approach but here'...
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How to choose trades over time when capital is limited
Say I'm in the business of trading forward contracts. So at some point in time, I look at the markets, and determine a number of trades I could make. For each trade, I know the profit I expect to make,...
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Why there is a Deviation on my RSI indicator in comparison from one of the other Trading Markets
Hello all, and sorry for this stupid question. I am using my custom RSI indicator to which I created programmatically. I follow the equation type from here. My problem is when I compare it with the ...
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How to ascertain/establish certainty of a portfolio rebalancing strategy?
I created a portfolio rebalancing strategy, that I am currently paper trading with. It is, primarily, based on mean-reversion principle with a few rules in place, and geared towards cryptocurrencies, ...
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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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Backtrader doesn't display time when backtesting
I am trying to backtest a strategy with Backtrader (not the first time) and have a problem while printing date & time for each iteration (time stay on 23:59:59). Here are the first lines of my ...
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Calculate Returns of Momentum Strategy (Overlapping Portfolios - Jegadeesh and Titman 1993)
I want to implement a Momentum Strategy, followed by Jegadeesh and Titman (1993) with overlapping Portfolios. I want to duplicate their results.
Quick Link to the paper (Unfortunately the Method is ...
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Does MPR imply strategies with positive average return?
Doesn't the existence of Market Price of Risk make investment strategies relying on the average outcome of a risky investment attractive as compared to the expected value of it (computed under the ...
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