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How Effective Are Stop-Loss Orders?

Posted on April 8, 2023 By 
A stop-loss order is a type of order used in trading to limit an investor’s losses or to take a profit. It is an instruction to sell a security when it reaches a certain price level, known as the stop price. When the stop price is reached, the stop-loss order …
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How Reliable Is Out-of-Sample Testing?

Posted on March 24, 2023 By 
Out-of-sample testing is a critical component of designing and evaluating trading systems. Trading systems are often developed and optimized using historical data, which can lead to overfitting – a situation where the system is excessively tuned to past data, resulting in poor performance on new, unseen data. Out-of-sample testing involves …
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How to Deal with Missing Financial Data

Posted on March 15, 2023 By 
In the financial industry, data plays a critical role in enabling managers to make informed decisions and manage risk effectively. Financial data can come from a wide range of sources, including economic indicators, company financial statements, market data, customer transaction histories, and social media sentiment. By analyzing this data, financial …
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AI Aging: Model Quality Degradation

Posted on March 3, 2023 By 
Artificial Intelligence (AI) and Machine Learning (ML) are two rapidly growing fields that have revolutionized the way we process and analyze data. AI refers to the development of computer systems that can perform tasks that typically require human intelligence, such as visual perception, speech recognition, decision-making, and natural language processing. …
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An Option Pricing Model Based on Market Factors

Posted on February 21, 2023 By 
In option pricing theory, the risk-neutral measure is a measure that allows for the valuation of financial instruments such as options. The risk-neutral measure is obtained by assuming that investors are indifferent to the risk and that the expected rate of return on all assets is equal to the risk-free …
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Diffusive Volatility and Jump Risks

Posted on January 29, 2023 By 
Implied volatility is an estimation of the future volatility of a security’s price. It is calculated using an option-pricing model, such as the Black-Scholes model, as it takes into account various factors including the current price of the underlying asset and its strike price. Implied volatility helps investors to gauge …
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Factor Model for Delta-Hedged Options Returns

Posted on January 16, 2023 By 
Options are contracts that allow traders to buy or sell a security at a predetermined price. Options give the holder the right, but not the obligation, to buy (call option) or sell (put option). They are traded on exchanges like stocks and have their own ticker symbols. Options can be …
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