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1500 questions
42
votes
3 answers
How to build a factor model?
Factor models such as Fama-French or the other ones that are partially summarized here work on the cross-section of asset returns.
How are the factors built, how are sensitivities/coefficients estimated? In this context Fama-MacBeth regressions are…
Richi Wa
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40
votes
12 answers
How fast is QuickFix ?
In my firm we are beginning a new OMS (Order Management System) project and there is a debate whether we use Quickfix or we go for a professional fix engine? Because there is a common doubt that QuickFix is not enough fast and obviously we will not…
ali_bahoo
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40
votes
5 answers
Why aren't econometric models used more in Quant Finance?
There is a big body of literature on econometric models like ARIMA, ARIMAX or VAR. Yet to the best of my knowledge practically nobody is making use of that in Quantitative Finance. Yes, there is a paper here and there and sometimes you find an…
vonjd
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40
votes
9 answers
Has high frequency trading (HFT) been a net benefit or cost to society?
Various studies have demonstrated the very large and growing influence of high frequency trading (HFT) on the markets. HFT firms are clearly making a great deal of money from somewhere, and it stands to reason that they are making this money at the…
Tal Fishman
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38
votes
6 answers
What type of investor is willing to be short gamma?
As far as I understand, most investors are willing to buy options (puts and calls) in order to limit their exposure to the market in case it moves against them. This is due to the fact that they are long gamma.
Being short gamma would mean that the…
0x26res
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38
votes
6 answers
How to estimate real-world probabilities
In the world of finance, Risk-neutral pricing allow us to estimate the fair value of derivatives using the risk free rate as the expected return of the underlyings.
However, the behavior of financial assets in the real-world might be substantially…
sets
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38
votes
2 answers
How useful is Markov chain Monte Carlo for quantitative finance?
Naively, it seems that Bayesian modeling, structural models particularly, would be quite useful in finance because of their ability to incorporate market idiosyncrasies and produce accurate probabilistic estimates.
The down-side of course, is…
DavidShor
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38
votes
11 answers
Mapping symbols between tickers, Reuters RICs and Bloomberg tickers
Is there any known solution (preferably open source) to map between ticker symbols, Reuters and Bloomberg symbols. For example:
Ticker: AAPL
Reuters: AAPL.O (may be prefixed with RSF.ANY. dependent upon infrastructure)
Bloomberg: AAPL US…
Datageek
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38
votes
9 answers
What is the difference between volatility and variance?
How do volatility and variance differ in finance and what do both imply about the movement of an underlying?
Jaydles
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38
votes
3 answers
Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?
There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods:
The time-series regression approach of Fama and French. Factors are defined ex ante. Betas to the factors are estimated in…
Ram Ahluwalia
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38
votes
5 answers
How should I calculate the implied volatility of an American option in a real-time production environment?
There are many models available for calculating the implied volatility of an American option. The most popular method, employed by OptionMetrics and others, is probably the Cox-Ross-Rubinstein model. However, since this method is numerical, it…
Tal Fishman
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37
votes
4 answers
What types of neural networks are most appropriate for trading?
What types of neural networks are most appropriate for forecasting returns? Can neural networks be the basis for a high-frequency trading strategy?
Types of neural networks include:
Radial Basis Function Networks
Multilayer Perceptron (standard…
phoenix1886
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37
votes
8 answers
Digital Signal Processing in Trading
There is a concept of trading or observing the market with signal processing originally created by John Ehler. He wrote three books about it.
Cybernetic Analysis for Stocks and Futures
Rocket Science for Traders
MESA and Trading Market Cycles
There…
ali_bahoo
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37
votes
2 answers
What are the quantitative finance papers that we should all have in our shelves?
Which quantitative finance papers should we all know about? What are the seminal references in various quantitative finance areas such as empirical asset pricing and theoretical asset pricing?
phdstudent
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37
votes
5 answers
Strictly local martingales: what is the intuition behind them?
A process $X_t$ is a local martingale if there exists an increasing sequence of stopping times $\{\tau_k,k=1,2,...\}$, with $\tau_k \to \infty$ almost surely, such that each stopped process is a martingale. All true martingales are local…
Kiwiakos
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