Can Credit Growth and The Yield Curve Predict Financial Crises?

Posted on January 14, 2022 By Harbourfront Technologies

We have discussed how the volatility index, VIX, and the yield curve can be used to predict recessions. On a similar topic, a recent paper argued that machine learning models are outperforming logistic regression when it comes to predicting financial crises. It explored the reasons behind this and showed …

Predicting Recessions Using The Volatility Index And The Yield Curve

Posted on January 11, 2022 By Harbourfront Technologies

The yield curve is a graphical representation of the relationship between the yields of bonds with different maturities. The yield curve has been inverted before every recession in the United States since 1971, so it is often used as a predictor of recessions. Indeed, the spread between the long-term and …

Mean-Reverting Process in Real Option Valuation

Posted on January 7, 2022 By Harbourfront Technologies

What does the mean reversion of asset price have to do with options pricing? We have explored this topic previously for financial options. However, the mean-reverting property of an asset affects not only the values of financial options but also real options. A real option is the right – but …

Can a Complex Trading System Be Profitable?

Posted on January 4, 2022 By Harbourfront Technologies

A trading system is a set of rules that a trader uses to make buy and sell decisions. It’s commonly believed that a profitable trading system should be simple, with few parameters, so that it can be easily understood and followed. It is also important for the system to be …

Valuation Adjustment Mechanism (VAM): Definition, Agreement, Example, Usage

Posted on January 3, 2022 By Harbourfront Technologies

The term mergers and acquisitions (M&A) refers to the consolidation of companies through financial transactions. This process involves one company acquiring another company’s shares. Several terms and conditions may apply to these transactions. However, these terms may differ from one market to another. The valuation adjustment mechanism is unique to …

Top Investing Lessons From the Farther of Quantitative Investing

Posted on January 2, 2022 By Harbourfront Technologies

Ed Thorp is a pioneer in the world of quantitative trading. He was one of the first people to use mathematics and statistics to develop trading systems and strategies. His work has been instrumental in developing the field of quantitative finance, and he is widely regarded as one of the …

Asset Price Dynamics and Trading Strategy’s PnL Volatility

Posted on January 1, 2022 By Harbourfront Technologies

In a previous post, we discussed how the dynamics of assets are priced in the options prices. We recently came across a newly published article that explored the same topic but from a different perspective that does not involve options. The conclusion of the new article is consistent with …

Are Collateralized Debt Obligations Risky Investments?

Posted on December 31, 2021 By Harbourfront Technologies

A collateralized debt obligation (CDO) is a security backed by a pool of assets, such as mortgages, credit card debt, or other types of loans. The issuer of a CDO assembles different types of debt instruments and sells ownership stakes in the CDO to investors. Because the underlying assets are …

Decentralized Finance (DeFi) Will Continue to Grow

Posted on December 30, 2021 By Harbourfront Technologies

DeFi, which stands for Decentralized Finance, is a growing sector in the world of finance. It refers to financial applications that are built on top of blockchain technology, and it offers a number of advantages over traditional finance. DeFi is still in its early days, but it is quickly gaining …

Selection Bias: How It Affects Our Lives

Posted on December 30, 2021 By Harbourfront Technologies

Human psychological bias affects us in many different ways. We have recently discussed how recency bias influences our trading. In this post, we’re going to talk about selection bias. Selection bias occurs when a statistical sample is not representative of the entire population. This situation arises, for example, when a …