What is High-Frequency Trading? High-Frequency Trading (HFT) refers to a method of trading used by investors. This method involves using computer software to buy or sell large numbers of stocks or securities in a short time. Due to this characteristic, it gets the name high-frequency trading. Investors can use algorithmic programs to analyze various stocks…
Read More How High-Frequency Trading WorksOptions are complex financial instruments that often attract sophisticated traders and investors. In investment banks and hedge funds, they’re often the instrument of choice when one wants to engage in sophisticated trading strategies such as volatility arbitrage, dispersion trading. Another important role of options is for hedging and risk management purposes. Recently, there is a…
Read More Overlaying Options Spreads on a Technical Trading StrategyTrading using market sentiment indicators is an approach that analyzes the market sentiment data to make trading and investing decisions. Due to the increasing popularity of social networks, social media data in general and Twitter data in particular have been used growingly in the construction of sentiment indicators. Sentiment analysis can use natural language processing,…
Read More Using Twitter Data as Sentiment Indicator, a Trading Strategy Based on President Trump’s TwitsWe typically divide the markets into 2 regimes: trending or mean-reverting. In a recent paper [1], the authors not only divided the markets into these 2 regimes but also added a third one, a so-called random walk regime. Investors generally go long when the market is rising and short when the market is falling. In…
Read More Using Push-Response, Variance-Ratio, and P+/P- Tests to Characterize the Markets.In a previous post, we demonstrated the mean-reverting and trending properties of SP500. We subsequently developed a trading system based on the mean-reverting behavior of the index. In this installment, we will develop a trend-following trading strategy. Trend following or trend trading is a trading strategy according to which one should buy an asset when…
Read More Trend-Following Trading System, Quantitative Trading in PythonIn a previous post, we presented a time series analysis of the SP500 index and demonstrated its mean-reverting and trending behaviour. Subsequently, we designed trading strategies exploiting these mean-reverting and trending properties of SP500. Does this mean that the SP500, and stock market indices in general, can be predicted? In a recent publication [1], the…
Read More Can the SP500 Index be Predicted?In a previous post, we demonstrated the mean-reverting and trending properties of SP500. In this follow-up post, we will develop a simple trading system exploiting the mean-reverting behaviour of this market index. To generate buy and sell signals, we will use simple moving averages as noise filters. The simple moving average takes an average value…
Read More Mean-Reverting Trading System-Quantitative Trading in PythonA technical or quantitative trading system on a linear (i.e. delta 1) instrument is basically a bet on the autocorrelation of the underlying. The autocorrelation properties of the underlying can be examined directly through autocorrelation functions or indirectly through the Hurst exponent. In this post, we are going to examine the mean-reverting and trending properties…
Read More Autocorrelation Properties of SP500-Quantitative Trading in PythonDerivatives are financial products whose values are determined by the current price of the underlying asset or portfolio. Weather derivatives are a particular class of financial instruments that individuals or companies can use in support of risk management in relation to unpredictable or adverse weather conditions. While some may see them as an exciting innovation,…
Read More Pricing of Weather Derivatives Using Monte Carlo SimulationsDividend yield is an input into the option valuation model that often receives little attention from practitioners. This is probably because the majority of companies do not pay dividends. And for those that pay, an inaccuracy in the estimation of the dividend yield often has a small impact on the fair value of the financial…
Read More How to Determine Implied Dividend Yield-Derivative Valuation in Excel