# All Questions

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45k views

### Are there any good tools for back testing options strategies?

There are all kinds of tools for backtesting linear instruments (like stocks or stock indices). It is a completely different story when it comes to option strategies. Most of the tools used are ...
3k views

### Is my trading strategy search methodology sound?

I'm building an algorithmic trading business. I'd be grateful for informed comments and opinions on my trading strategy search methodology. Goal Develop (profitable!) fully automated intra-day ...
1k views

### How to show that this weak scheme is a cubature scheme?

Weak schemes, such as Ninomiya-Victoir or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the Heston Model. Can anyone familiar with Cubature on ...
10k views

### Is F# used in trading systems?

Similar to this other question about Scala, I'm interested in knowing whether F# is used to any measurable degree in financial circles. Have there been any successful shops using it, any research on ...
30k views

### What type of investor is willing to be short gamma?

As far as I understand, most investors are willing to buy options (puts and calls) in order to limit their exposure to the market in case it moves against them. This is due to the fact that they are ...
8k views

### How to estimate real-world probabilities

In the world of finance, Risk-neutral pricing allow us to estimate the fair value of derivatives using the risk free rate as the expected return of the underlyings. However, the behavior of ...
70k views

### What open source trading platform are available

I would like to compile a list of open source trading platforms. Something that would give an overview and comparison of different architectures and approaches.
8k views

### Trading a synthetic replication of the VIX index

One cannot directly buy and sell the VIX index. Theoretically, however, one could approximate the index by purchasing an at-the-money straddle on the SP500, then delta-hedging the straddle. Does ...
13k views

### Skew arbitrage: How can you realize the skewness of the underlying?

It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage. Volatility arbitrage (or vol ...
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 ...
12k views

### What is a good broker for HFT?

Currently I trade trough IB. I run my HFT strategies (100 roundtrips per hour) but I think that latency is killing me and my profits are shrinking. I need the fastest possible brokers out there which ...
18k views

### What is the intuition behind cointegration?

What is the intuition behind cointegration? What does the Dickey-Fuller test do to test for it? Ideally, a non-technical explanation would be appreciated. Say you need to explain it to an investor ...
30k views

### Digital Signal Processing in Trading

There is a concept of trading or observing the market with signal processing originally created by John Ehler. He wrote three books about it. Cybernetic Analysis for Stocks and Futures Rocket Science ...
24k views

### How should I store tick data?

How should I store tick data? For example, if I have an IB trading account, how should I download and store the tick data directly to my computer? Which software should I use?
5k views

### Why aren't econometric models used more in Quant Finance?

There is a big body of literature on econometric models like ARIMA, ARIMAX or VAR. Yet to the best of my knowledge practically nobody is making use of that in Quantitative Finance. Yes, there is a ...
5k views

### Random matrix theory (RMT) in finance

The new kid on the block in finance seems to be random matrix theory. Although RMT as a theory is not so new (about 50 years) and was first used in quantum mechanics it being used in finance is a ...
16k views

### How should I calculate the implied volatility of an American option in a real-time production environment?

There are many models available for calculating the implied volatility of an American option. The most popular method, employed by OptionMetrics and others, is probably the Cox-Ross-Rubinstein model. ...
55k views

### What is the difference between volatility and variance?

How do volatility and variance differ in finance and what do both imply about the movement of an underlying?
36k views

### How to identify technical analysis chart patterns algorithmically?

I'm working on a small application that will provide some charts and graphs to be used for technical analysis. I'm new to TA but I'm wondering if there is a way to algorithmically identify the ...
56k views

6k views

### Strictly local martingales: what is the intuition behind them?

A process $X_t$ is a local martingale if for each increasing sequence of stopping times $\{\tau_k,k=1,2,...\}$ the stopped process is a martingale. All true martingales are local martingales, but the ...
2k views

### Law of an integrated CIR Process as sum of Independent Random Variables

It is known (see for example Joshi-Chan "Fast and Accureate Long Stepping Simulation of the Heston SV Model" available at SSRN) that for a CIR process defined as : dY_t= \kappa(\theta -Y_t)...
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 ...
8k views

### What exactly is meant by “microstructure noise”?

I see that term tossed around a lot, in articles relating to HFT, and ultra high frequency data. It says at higher frequencies, smaller intervals, microstructure noise is very dominant. What is ...
16k views

### Any known bugs with Yahoo Finance adjusted close data ?

Yahoo Finance allows you to download tables of their daily historical stock price data. The data includes an adjusted closing price that I thought I might use to calculate daily log returns as a ...
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 ...
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 ...
23k views

### How to derive the implied probability distribution from B-S volatilities?

The general problem I have is visualization of the implied distribution of returns of a currency pair. I usually use QQplots for historical returns, so for example versus the normal distribution: ...
16k views

### What is the difference between the methods for calculating VaR?

There are three different commonly used Value at Risk (VaR) methods: Historical method Variance-Covariance Method Monte Carlo What is the difference between these approaches, and under what ...
21k views

### Correctly applying GARCH in Python

Problem: Correct usage of GARCH(1,1) Aim of research: Forecasting volatility/variance. Tools used: Python Instrument: SPX (specifically adjusted close prices) Reference material: On Estimation of ...
6k views

### How good is managed code for algo trading?

I am currently working in a firm that does algo trading. We do all of our stuff in Java. And we do make money out of it. We have debates all the time whether we would have made more money with native ...
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. ...
9k views

### What is a stationary process?

How do you explain what a stationary process is? In the first place, what is meant by process, and then what does the process have to be like so it can be called stationary?
19k views

### What is the reference python library for portfolio optimization?

Does anyone know of a python library/source that is able to calculate the traditional mean-variance portfolio? To press my luck, any resources where the library/source also contains functions such as ...
5k views

### How to design a custom equity backtester? [closed]

I was thinking about writing my own backtester and I realize I have to make some assumptions. So I was hoping I could post what I am planning on doing and hopefully some of you can give me some ideas ...
7k views

### What is the role of stochastic calculus in day-to-day trading?

I work with practical, day-to-day trading: just making money. One of my small clients recently hired a smart, new MFE. We discussed potential trading strategies for a long time. Finally, he expressed ...
88k views

### What programming languages are most commonly used in quantitative finance?

What programming languages are the most common in quantitative finance, and why are these languages used? Note: I do not mean, what languages are used to develop the accounting system at a hedge fund:...
5k views

### What kind of basic framework or application do you use to run your trading algorithms?

I heard about MetaTrader from http://www.metaquotes.net. Is there any other framework or program available? Do you use different software for backtracking and running your trading algorithms? Thank ...
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?

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