When companies and businesses start operations, they may not be profitable. However, once they develop a customer base and good supplier relationships, they can earn more. These are things that come due to a company’s reputation, often termed as goodwill. Developing a good reputation is crucial for a company’s success in both the long- and…Read More What Is Reputational Risk?
Historical volatility (HV) is a useful measure to gauge market uncertainty. Recall that, In finance, volatility (usually denoted by σ) is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices… Investors care about volatility…Read More Exponentially Weighted Historical Volatility in Excel-Volatility Analysis in Excel
In the previous installments, we presented the concept of Modern Portfolio Theory. We also provided an optimization algorithm, written in Python, for searching for the optimal portfolio. To continue, we are going to perform some numerical experiments. Specifically, we are going to use the portfolio optimization program developed in the previous post in order to…Read More Modern Portfolio Theory-Effect of Diversification on the Optimal Portfolio-Portfolio Management in Python
In the previous installment, we presented a description of the Model Portfolio Theory and provided a concrete example in Python. We also explained the concept of an Efficient Frontier and provided a visual presentation of it. Recall that, … the efficient frontier (or portfolio frontier) is an investment portfolio which occupies the “efficient” parts of…Read More Modern Portfolio Theory-Searching For the Optimal Portfolio-Portfolio Management in Python
The Binomial tree is a standard method for pricing American style options. Recall that, The Binomial options pricing model approach has been widely used since it is able to handle a variety of conditions for which other models cannot easily be applied. This is largely because the BOPM is based on the description of an…Read More The Willow Tree Method, an Advanced Option Pricing Model
Previously, we elaborated on why hedging is an important tool for risk management. We illustrated the importance of hedging with examples from the commodity, mortgage back securities, and foreign exchange markets. A recent paper  evaluated the hedging effectiveness of various range-based volatility estimators. Among them, we can find the commonly used GARCH model. Generalized…Read More Hedging Market Risks Using Volatility Estimators-Are Sophisticated Methods Better?
Last month, efinancialcarreeers published a post, stating that quant’s life is getting harder these days. Back in the day, a quant in finance could devise a strategy, sit back and let the money roll in while lounging about in a silk robe with a fat cigar. Such are the halcyon dreams of the contemporary quantitative…Read More Is Quant’s Life Hard or Easy?
Convertible bonds are complex, hybrid securities. In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or…Read More Convertible Bond Arbitrage Using the Volatility Surface
Modern Portfolio Theory (MPT) is a theory developed by Harry Markowitz in 1952, which later earned him a Nobel Prize in Economics. The theory states that investors can create an ideal portfolio of investments that can provide them with maximum returns while also taking an optimal amount of risk. The theory helps risk-averse investors select…Read More Modern Portfolio Theory-The Efficient Frontier
In a previous post, we presented statistical tests for the Australia/Canada country ETF pair. Specifically, we calculated the return correlation and performed cointegration tests using a training set consisted of 8 years of data. The high correlation and the fact that the pair spread passed 2 cointegration tests made this pair a good candidate for…Read More Trading Performance of an ETF Pair Strategy-Quantitative Trading In Python