Blog

Explore the research behind our trading, plus some just-for-fun stuff....

Posted on May 07, 2020 by Robot James
No Comments.
113 Views

We've been working on visualisation tools to make option pricing models intuitive to the non-mathematician. Fundamental to such an exercise is a way to model the random nature of asset price processes. The Geometric Brownian Motion (GBM) model is a ubiquitous way to do this. We can represent the price of an asset at time [latex] t [/latex] as the state...

Posted on May 06, 2020 by Robot James
2 comments.
501 Views

This post summarises the key lessons of the academic literature that has been published on pairs trading.  The key themes are highlighted at the end of the page. Pair Trading Literature Review Gatev, Goetzmann, Rouwenhorst - "Pairs Trading: Performance of a Relative Value Arbitrage Strategy" https://papers.ssrn.com/sol3/papers.cfm?abstract_id=141615 This is the first meaningful academic paper on pair trading They use daily closing...

Posted on May 05, 2020 by Robot James
8 comments.
602 Views

One of the things I've noticed from staring at the screen all day for the last few months is that most of the large negative returns in US stock indexes have come overnight. What do you mean by “overnight”? The core stock trading session for US stocks is between 9:30 am and 4 pm Eastern Time. That's when most stock...

Posted on May 04, 2020 by Ajet Luka
8 comments.
397 Views

In today's post we are going to be extracting CoT (Commitment of Traders) reports from the CFTC website using a pipeline built on Apache Airflow. What is CoT data? The CoT report is a weekly publication which reports the open positions of market participants in the U.S futures market. It's published every Friday at 3:30 E.T but the actual report...

Posted on Apr 30, 2020 by Robot James
2 comments.
318 Views

In the eye of the recent storm, with VIX up over 50, many traders were looking to "short the VIX" using products like TVIX. “Surely it's going to coming back down?” Well yeah, it will, eventually, but that doesn't mean that you can profitably short VIX products. First, some basics… What is VIX? VIX is a benchmark index for SPX...

Posted on Apr 26, 2020 by Kris Longmore
2 comments.
300 Views

For simulating stock prices, Geometric Brownian Motion (GBM) is the de-facto go-to model. It has some nice properties which are generally consistent with stock prices, such as being log-normally distributed (and hence bounded to the downside by zero), and that expected returns don't depend on the magnitude of price. Of course, GBM is just a model and no model is...

Posted on Apr 19, 2020 by Kris Longmore
5 comments.
513 Views

Optimisation tools have a knack for seducing systematic traders. And what’s not to love? Find me the unique set of parameters that delivered the greatest return in my ten-year backtest. And do it in under five seconds. That’s certainly attractive. But do you want to hear something controversial? When it comes to the parameters of a systematic trading strategy, in...

Posted on Apr 16, 2020 by Kris Longmore
3 comments.
626 Views

One of the keys to running a successful systematic trading business is a relentless focus on high return-on-investment activities. High ROI activities include: Implementing new trading strategies within a proven framework. An example might be to implement a portfolio of pairs trades in the equity market. Scaling existing strategies to new instruments or markets. For example, porting the pair trading...