In this article, we’ll use simulation and simple visualisations to build intuition around how different variables drive the price of an option. Building this intuition is important because it helps you react quickly and make decisions without relying on complex pricing models. Let’s get to it. The value of a call option at expiration A …
Back in May 2020, in the eye of the Covid storm, we looked at overnight vs intraday returns in US equities. Intuitively, we’d probably expect to see higher average returns overnight when the market is closed – because it’s much more difficult to hedge and manage our exposures when the cash market is closed, so …
Last week, we looked at simple data analysis techniques to test for persistence. But we only looked at a feature that is measured over a single day – the absolute range. Such a feature makes it easy to test persistence because you don’t have the problem of overlapping data. Each data point is entirely self-contained …
Navigating Tradeoffs with Convex Optimisation This is the final article in our recent stat arb series. The previous articles are linked below: A short take on stat arb trading in the real world A general approach for exploiting stat arb alphas Ideas for crypto stat arb features Quantifying and combining crypto alphas A simple and …
This article continues our recent stat arb series. The previous articles are linked below: A short take on stat arb trading in the real world A general approach for exploiting stat arb alphas Ideas for crypto stat arb features Quantifying and combining crypto alphas A simple and effective way to manage turnover and not get …
Modeling features as expected returns can be a useful way to develop trading strategies, but it requires some care. The main advantage is that it directly aligns with the objective of predicting and capitalising on future returns. This can make optimisation and implementation more intuitive. It also facilitates direct comparison between features and provides a …
Every time we trade, we incur a cost. We pay a commission to the exchange or broker, we cross spreads, and we might even have market impact to contend with. A common issue in quant trading is to find an edge, only to discover that if you executed it naively, you’d get killed with costs. …
In this article, I’ll take some crypto stat arb features from our recent brainstorming article and show you how you might quantify their strength and decay characteristics and then combine them into a trading signal. This article continues our recent articles on stat arb: A short take on stat arb trading in the real world …
Here in Australia, we’re right in the depths of the silly season. We indulge in long lunches, take days off work, and generally let our hair down. In that spirit, I thought I might have some fun punting shitcoins. (Maybe my definition of fun differs from yours, but let’s run with it). For the uninitiated, …
The Equal Risk Contribution (ERC) portfolio seeks to maximally diversify portfolio risk by equalising the risk contribution of each component. The intuition is as follows: Imagine we have a 3-asset portfolio Assets 1 and 2 are perfectly correlated (correlation of 1.0) Asset 3 is uncorrelated with the other two (correlation of 0.0) Let’s say we …
