More and more investors are using the power of computing technologies and quantitative techniques to manage their portfolios these days. They believe that quantitative trading can help reduce the PnL volatility resulted from emotional decision making and thus increase the consistency of returns. However, sometimes the machine beats the man, and sometimes it does not.…Read More Quantitative Trading: VIX Factor Model and Trend Following
In a previous post, we examined the relationship between the Credit Default Swap (CDS) and equity volatility, and argued that there is a strong correlation between them. But like any relationship in financial markets, this one can break down and divergence can happen. For instance, last month we noticed that CDS in Asia and Australia…Read More Divergence Between Credit Default Swap and Equity Volatility
Yesterday the Federal Reserve Chair Janet Yellen said at a University of Michigan event that the Fed planned to raise short-term interest rates. “I think we have a healthy economy now … but it’s been a long time coming,” Yellen said. Yellen said the current unemployment rate of 4.5% is “even a little bit below”…Read More Another Look at Prepayment Risk of Mortgage-Backed Securities
After an increase in volatility, equity markets seem to be going back into the state of calmness. Additionally, with Easter coming up, volume and volatility are expected to remain low, at least for a couple of weeks. However, beside the equity world, the credit market is experiencing a tightening as well. The graph below shows…Read More Relationship Between Credit Default Swaps and Equity Options
Equity markets were relatively calm after the US election. The recent weeks, however, have seen some increase in volatility. Is this just a blip or the start of a volatile period? Nobody knows the exact answer. But Gregory Meyer et al of FT.com reported that there are firms, notably DRW, based in Chicago, that already…Read More Hedging in the Mortgage Backed Securities Market Can Increase Volatilities
With the VIX being so low, many investors believe that now is the time to go long volatility. This belief mainly stems from the mean reversion property of the VIX. However, we should note that The speed of mean reversion in the low volatility regime is slower than it is in the high volatility one…Read More Should We Buy VIX Futures When The Spot VIX is Low?