10 votes

Strategy of Renaissance Technologies Medallion fund: Holy Grail or next Madoff?

There is an extensive discussion of what is publicly known in Paul Wilmott's new book (which is a very enlightening and enjoyable read, btw): Wilmott, P., Orrell, D.: The Money Formula: Dodgy Finance,...
vonjd's user avatar
  • 27.4k
8 votes
Accepted

Why not just be long VIX and wait for the next volatile period?

Put simply, VIX is a spot index (fair value to a variance swap on SPX of constant maturity) that you cannot own as a security. Market participants create futures for you to trade. Futures trade higher ...
ExIR's user avatar
  • 171
6 votes

Do you think this strategy will work?

The best answer to your question: back test your ideas against historical data. If you think you can predict the market by learning past patterns prove it by testing it, not by discussion. I've done ...
Kris Wasiak's user avatar
6 votes
Accepted

Why there is a Deviation on my RSI indicator in comparison from one of the other Trading Markets

J. Welles Wilder Jr created the indicator called the Relative Strength Indicator in 1967. The indicator he originally created uses all data points in the sample series, not just the last 14 data ...
Richard at NorgateData's user avatar
6 votes

Methods to improve systematic strategies

Order execution optimization: how to execute changes to your portfolio without suffering (too much) from implementation shortfall. Work of Almgren and Chris set a modern foundation of this space, and ...
numerairX's user avatar
  • 609
5 votes

Why Good forecasting != Good trading?

Why Good forecasting != Good trading? I am not yet familiar with the F1 score the author compares with the Sharpe ratio. But the article rightly points out at least two grounds on which good ...
Iñaki Viggers's user avatar
5 votes
Accepted

Is forex trade set up where profit target is twice as far from stop loss is good strategy?

If you have no edge, then you would indeed expect twice as many losing trades as winning trades, so you would net out to zero return on average (negative after commissions and trading frictions). This ...
Chris Taylor's user avatar
  • 5,901
5 votes

Why should a self-financing strategy be previsible?

A self-financing strategy needs to be previsible (aka predictable) since at time $t$, you need to decide (with the information from $\mathcal{F}_t$) how much you want to be invested in the different ...
Kevin's user avatar
  • 15.7k
5 votes
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Basics of trading strategy development

It is good for beginner to start with fundamentals. It can be a book "Systematic Trading: a unique new method for..." by Robert Carver (2015). Then it is good to read/listen to Ernest P. Chan, really ...
ltrd's user avatar
  • 501
4 votes

What's the rationale behind having several orders on each each side for market makers

I've read this question and the other question you asked and I hope I can help. The important thing to realize that in any market multiple market makers operate and they are all trying to optimize ...
Bob Jansen's user avatar
  • 8,543
4 votes
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Shorting an option every day vs shorting only at maturity

Draw a picture. For each scenario, there are obvious circumstances that the payoff for each would be better. For the N day option, the payoff would be better if there was a slow gradual decline in ...
RandyF's user avatar
  • 719
4 votes

Basics of trading strategy development

For introduction to algo trading, market microstructure, limit order book data, also be aware of errors strategists make when inferring performance from naive poorly-designed backtests, Kaufman (2013)...
develarist's user avatar
  • 3,000
4 votes
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Workflow in algorithmic strategies

"What are more appropriate way to test it with real-world data? Also, can you suggest the next steps to make it more realistic?" Pick a tradable instrument (e.g. SPY rather than S&P500), ...
user42108's user avatar
  • 2,252
3 votes

Literature on credit risk premia

Two papers by AQR might be of use: Asvanunt, A. and S. Richardson (2016), “The Credit Risk Premium”: Despite theoretical and intuitive reasons for a credit risk premium, past research has found ...
AK88's user avatar
  • 1,840
3 votes
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Where to get historical equity data?

Recently I came across interesting platform. https://www.quantopian.com/ they offer exactly what you need and for free. Basically, you code your algo in python, they provide data using api and ...
Michael Mark's user avatar
3 votes

Writing an Options Strategy Backtester

For whoever stumbles upon this, as I did. The dimensionality of the problem is so much larger. If someone tells you backtesting options is the same as backtesting stocks or any delta-1 underlying, ...
jason m's user avatar
  • 135
3 votes
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Writing an Options Strategy Backtester

Alright this is a good question. I've been there before. As you said, backtesting options will be almost the same as stocks, but with more data to play with (Greeks, volatility, theoretical prices, ...
Ariel Silahian's user avatar
3 votes

Strategy for implied volatility

Firstly, remember that in general vega is positive for all options. Hence, the fact that the implied volatility is higher in the wings (high and low strikes, i.e. deep ITM/OTM) means that these ...
AdB's user avatar
  • 704
3 votes

Is there a way to figure out "hot" strategies?

Look to see if the "premium" of the risk/strategy has diminished. In your example of selling volatility, the strategy would be to sell "implied volatility" higher than "realized volatility". If the ...
AlRacoon's user avatar
  • 6,212
3 votes

Adjusting volatility while constructing portfolio

Page 6 also describes Long-short portfolios take long (or short) positions in assets with favorable (or unfavorable) macroeconomic trends relative to the cross-sectional average, and are designed ...
develarist's user avatar
  • 3,000
3 votes

Rigorous proof that volatility target strategies actually tend to the target

Suppose that you are riskless asset with return $r_{ft}$ and a risky asset with return $r_t$ and conditional volatility $\sigma_t(r_t) := \sqrt{V_t(r_t)}$. We build a portfolio using weights $(w_1, ...
Stéphane's user avatar
  • 2,456
3 votes
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Black-Scholes Delta value at maturity?

You simply take limits. Recall that in the Black-Scholes world $$d_1=\frac{\ln\left(\frac{S_t}{K}\right)+\left(r-q+\frac{1}{2}\sigma^2\right)(T-t)}{\sigma\sqrt{T-t}}.$$ As $t\to T $, we have $d_1\to\...
Kevin's user avatar
  • 15.7k
3 votes

Basics of trading strategy development

Hands on Machine Learning for Algorithmic Trading by Jansen is a good book too. Granted, whilst it focuses more on the ML side and is a rather thick book, it has great depth and explanation on some ...
Hamish Gibson's user avatar
3 votes
Accepted

Question in convex arbitrage

See the graph below. Let's define the PNL as the position's payoff at expiry plus accrued initial investment, i.e. collected / paid option premia. Assuming $K_1=95,K_2=100,K_3=105$ (i.e. $\lambda=0.5$)...
Kermittfrog's user avatar
  • 6,535
3 votes
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Is the Gittins index useful in determining when to change an investment/trading strategy?

Gittins is as useful as your ability to forecast returns and uncertainty. Depending on what you use for 'uncertainty,' you may just be replicating processes that other financial metrics already ...
amdopt's user avatar
  • 4,738
3 votes
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Colosseum Fight - A probability problem

I believe the answer is 4+5+9+12 / (4+5+9+12+1+2+3+4). Starting with a simple problem of 2 gladiators (strengths A, B) vs 1 gladiator (strength Z). Regardless of the order, the probability of winning ...
justtryingtolearn's user avatar
2 votes

Shorting an option every day vs shorting only at maturity

Strategy A has fatter tails and should outperform when the volatility surface is convex. Note that both strategies have the same average option maturity = N/2 days. However, for Strategy A option ...
Yugmorf's user avatar
  • 791
2 votes

how to measure a event driven strategy?

I would do regression analysis with a dummy variable. Take a large sample of companies, and add a 0 - 1 dummy variable where that variable is equal to 1 if it meets the momentum and refi criteria, and ...
horseless's user avatar
  • 266
2 votes

Writing an Options Strategy Backtester

In terms of computational difficulty, I do not see Options backtesting in the same league as equity backtesting. There are more variables involved, and the dataset is much larger. But the bottom line ...
Motopixman's user avatar

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