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42
votes
12answers
28k views

Why does the minimum variance portfolio provide good returns?

I've been a researching minimum variance portfolios (from this link) and find that by building MVPs adding constraints on portfolio weights and a few other tweaks to the methods outlined I get ...
36
votes
4answers
9k views

What types of neural networks are most appropriate for trading?

What types of neural networks are most appropriate for forecasting returns? Can neural networks be the basis for a high-frequency trading strategy? Types of neural networks include: Radial Basis ...
36
votes
2answers
9k views

Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods: The time-series regression approach of Fama and French. Factors are ...
43
votes
6answers
26k views

What is an efficient data structure to model order book?

What is an efficient data structure to model order book of prices and quantities to ensure: constant look up iteration in order of prices retrieving best bid and ask in constant time fast quantity ...
29
votes
11answers
5k views

Separating the wheat from the chaff: What quant methods separate skillful managers from lucky ones?

Fund managers are acting in a highly stochastic environment. What methods do you know to systematically separate skillful fund managers from those that were just lucky? Every idea, reference, paper ...
33
votes
9answers
15k views

What tools exist for order book analysis and visualization?

What tools exist for order book analysis and visualization? In particular, if one wanted to examine a limit order book and understand how it changes throughout the day where would you turn for ...
26
votes
2answers
4k views

What are the quantitative finance papers that we should all have in our shelves?

Which quantitative finance papers should we all know about? What are the seminal references in various quantitative finance areas such as empirical asset pricing and theoretical asset pricing?
28
votes
8answers
29k views

What is the best data structure/implementation for representing a time series?

I was wondering what is best practice for representing elements in a time series, especially with large amounts of data. The focus/context is in a back testing engine and comparing multiple series. ...
44
votes
9answers
8k views

How 'High' is the frequency in HFT?

How many trades per second are we talking about? What kind of strategies are used in this time frame? Can the small guy play the game?
26
votes
5answers
18k views

What are the advantages/disadvantages of these approaches to deal with volatility surface?

I would like to know if someone could provide a summarized view of the advantages and disadvantages of the approaches on the volatility surface issues, such as: Local vol Stochastic Vol (Heston/SVI) ...
30
votes
11answers
32k views

Central Index Key (CIK) of all traded stocks

Is there a way by which I can get a list of CIK of all registered stocks at the SEC?
25
votes
1answer
3k views

How do different methods and techniques used in pairs trading compare?

I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score. I am wondering if anyone has ...
18
votes
3answers
4k views

Why do expected return models and risk models use different factors?

This is a question responding to weekly topic challenge. I happen to see an interesting question from SYMMYS by Michael Kapler. I always approached expected return and risk modeling as separate ...
47
votes
9answers
4k views

Are there any new Option pricing models?

Back in the mid 90's I used the Black-Scholes Model and the Cox-Ross-Rubenstein (Binomial) Model's to price Options. That was nearly 15 years ago and I was wondering if there are any new models being ...
29
votes
5answers
6k views

What methods do you use to improve expected return estimates when constructing a portfolio in a mean-variance framework?

One of the main problems when trying to apply mean-variance portfolio optimization in practice is its high input sensitivity. As can be seen in (Chopra, 1993) using historical values to estimate ...
27
votes
6answers
18k views

How do you explain the volatility smile in the Black-Scholes framework?

Does anyone have an explanation for the currently naturally forming volatility smile (and the variations) in the market?
9
votes
4answers
20k views

How to construct a Risk-Parity portfolio?

If I would like to construct a fully invested long-only portfolio with two asset classes (Bonds $B$ and Stocks $S$) based on the concept of risk-parity. The weights $W$ of my portfolio would then be ...
29
votes
2answers
7k views

How do we use option price models (like Black-Scholes Model) to make money in practice?

In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so ...
9
votes
1answer
3k views

Arbitrage opportunity interview question

I have seen this interview question mentioned in a couple of places: There are three call options on the market, with the same expiry and with strikes 10, 20, and 30. Suppose the call option with ...
21
votes
6answers
17k views

Is Scala used in trading systems

I'm curious about high performance computing and consider algo/program trading as an interesting source of information about what are performant technologies that are used to trade the markets. Is ...
23
votes
2answers
13k views

Cross Currency Swap Pricing in nowadays environment

Multicurve setting has now become the new paradigm for vanilla swap valuation. For the record I give here (without getting into too much details) the methodoloy for pricing Euribor3M swaps in this ...
18
votes
6answers
55k views

How to fit ARMA+GARCH Model In R?

I am currently working on ARMA+GARCH model using R. I am looking out for example which explain step by step explanation for fitting this model in R. I have time series which is stationary and I am ...
18
votes
7answers
12k views

Switching from Matlab to Python for Quant Trading and Research

Has anybody else out there made this switch? I'm considering it right now. What were the negatives and positives of the switch?
14
votes
1answer
7k views

Multilayer Perceptron (Neural Network) for Time Series Prediction

I have it in mind to build a Multilayer Perceptron for predicting financial time series. I understand the algorithm concepts (linear combiner, activation function, etc). But while trying to build the ...
20
votes
4answers
4k views

When should you build your own equity risk model?

Commercial risk models (e.g., Barra, Axioma, Barclays, Northfield) have evolved to a very high level of sophistication. However, all of these models attempt to solve a very broad set of problems. ...
20
votes
4answers
8k views

Is there any good research on support and resistance?

Could somebody advise me on where to find good literature on the justification or motivation for using support and resistance lines - and also lines of maximums and minimums. In finance, it is ...
6
votes
2answers
3k views

Local vol, stochastic vol, implied vol

I've been studying volatility modelling over past the few days; in particular, the connections between local vol, stochastic vol, implied vol. I've been reading Gatheral's book "The volatility surface"...
20
votes
3answers
9k views

Control for bid/ask bounce in high-frequency trade data?

The bid-ask bounce is the bouncing of trade prices between the bid and ask sides of the market. It introduces a systematic bias to the data which can cause serious problems in analysis. What methods ...
11
votes
2answers
3k views

Delta-Hedging Exotic Options

I have already figured out that Delta-hedging essentially turns European options into volatility products where you pay implied vol and get paid realized vol for long positions and you pay realized ...
24
votes
3answers
4k views

Tools in R for estimating time-varying copulas?

Are there libraries in R for estimating time-varying joint distributions via copulas? Hedibert Lopes has an excellent paper on the topic here. I know there is an existing packaged called copula but ...
23
votes
4answers
6k views

Can the concept of entropy be applied to financial time series?

I am not familiar with the concept of entropy for time series. I am looking for good reference papers and examples of use.
19
votes
7answers
4k views

Looking for a recommendation for a real life volatily trading book.

Recently I started working in an algotrading company as a programmer. After I studied that subject a little in the university and read a book or two in that field I gained a little knowledge in that ...
17
votes
3answers
5k views

How do I find the most diversified portfolio, or least correlated subset, of stocks?

I have a trading system that chooses top 10 stocks in Nasdaq 100 ranked on relative strength and some other factors. However, I'd like to take positions in only 5 of these 10 stocks based on how ...
17
votes
4answers
3k views

What books should any quantitative portfolio manager or risk manager have as reference? [closed]

I'm interested to know what are the critical reference texts you rely on for portfolio or risk management? I mean those texts that you come back to because they are chock full of insight and know-how. ...
12
votes
1answer
2k views

How do different models impact option Greeks?

If I trade an option using delta, vega, Prob OTM, etc. these are derived from a model. How do leading models impact valuations in terms of the Greeks? I suppose to form a baseline it would have to be ...
16
votes
4answers
4k views

How to generate synthetic FX data for backtesting?

I want to generate synthetic forex data for the purpose of backtesting my trading algorithms. I have some rough ideas in mind on how to do this: Start with a curve representing a trend, then randomly ...
20
votes
3answers
5k views

Is there a popular curve fitting formula of options skew vs strike price or vs Delta?

I was trying to build a options trading/optimization system. But it often gets more inaccurate as it scans through the far from ATM options because, you know, options skews. That is because I did ...
15
votes
2answers
5k views

Modelling with negative interest rates

For a project, I am interested to model the impact of recently negative interest bonds on the portfolio. The literature on modelling negative interest rates is limited, and the only theory I could ...
15
votes
1answer
10k views

Time Series Regression with Overlapping Data

I am seeing a regression model which is regressing Year-on-Year stock index returns on lagged (12 months) Year-on-Year returns of the same stock index, credit spread (difference between monthly mean ...
13
votes
6answers
14k views

Historical Level 2 Data (Market Depth)

I'm currently looking to hone a system using market depth however I am looking for a good source of historical level 2 data. As of right now the best source of historical I have found is automated ...
11
votes
2answers
19k views

GARCH model and prediction

I have a question about the prediction of volatility and returns of a time series. Basically it is a question about predict in the ...
9
votes
3answers
4k views

What really is Gamma scalping?

How does Gamma scalping really work? It seems there is no true profit scalped. If we look at the simplest scenario, Black-Scholes option price $V(t,S)$ at time $t$ and the underlying stock price at $S$...
23
votes
3answers
11k views

What is a “coherent” risk measure?

What is a coherent risk measure, and why do we care? Can you give a simple example of a coherent risk measure as opposed to a non-coherent one, and the problems that a coherent measure addresses in ...
8
votes
4answers
7k views

Basket option pricing: step by step tutorial for beginners

I would like to learn how to price options written on basket of several underlyings. I've never tried to do it and I would appreciate if you can provide some documents, papers, web sites and so on in ...
7
votes
4answers
5k views

Typical coefficients uses in square-root model for market impact

The square-root model is widely used to model equity market impact. It assumes that volatility, traded volume, total volume, and a spread cost are the drivers of slippage. Jim Gatheral has an ...
6
votes
4answers
8k views

Local volatility surface corresponding to the implied volatility surface

In Derman/Kani/Zou paper about local vol they rebuilt a local vol surface from an implied vol surface. Each implied volatility depicted in the surface of the "implied Vol" is the Black-Scholes implied ...
20
votes
3answers
8k views

Is there an all Java options-pricing library (preferably open source) besides jquantlib?

I am looking for an all-java implementation of black scholes, preferably open source. I found jquantlib and quantlib (C++). Any other recommendations? The jquantlib site seems to be down. I'd prefer ...
19
votes
2answers
3k views

Do you have historical tick data you want to donate?

Do you have historical market/pricing ticket data that you would like to donate to the Open Source Trader project (OST)?? Please: upload your files! Once we gather some data, we'll do our best to ...
16
votes
4answers
3k views

What is the ideal ratio of in-sample length to out-of-sample length?

Suppose you are running a portfolio of quantitative strategies and that you develop a new potential strategy to be added to the mix. Assume for simplicity that the new strategy is independent of the ...
16
votes
4answers
3k views

What are modern algorithms for trade classification?

When dealing with trade data, for example from TAQ, a common problem is that of determining whether a trade was a buy or a sell. The most commonly used classifier is the Lee-Ready algorithm (Inferring ...

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