Pricing Convertible Bonds Using a Neural Networks Based Approach

Posted on June 14, 2022 By Harbourfront Technologies

A convertible bond is a bond that can be converted into a certain amount of the company’s stock at specified prices and dates. Convertible bonds are usually issued by young, growing companies that want to raise capital without giving up too much control of their company. For example, a company …

Using VIX Futures Term Structure for Trading

Posted on June 11, 2022 By Harbourfront Technologies

The volatility index, VIX, is a measure of the stock market’s expectation of volatility over the next 30 days. The VIX is calculated by using the prices of options on the S&P 500 Index. The VIX futures are derivative contracts that allow investors to bet on the future values of …

Corporate Job Postings as Alternative Data

Posted on June 8, 2022 By Harbourfront Technologies

The last decade has seen the rise in popularity of alternative data in financial analysis. This data is generally defined as any information that is not typically used in financial analysis, such as social media data, satellite imagery, and weather data. While alternative data has been used by hedge funds …

Validity of Research in Asset Management

Posted on June 5, 2022 By Harbourfront Technologies

Academic and practitioners’ literature is a source for many investment and trading ideas. However, it is often criticized for producing ideas that do not work in practice. A problem we have seen repeatedly is that the published papers, more often than not, only present in-sample results and disregard out-of-sample ones. …

Lead-Lag Relationship Between the VIX Index and VIX Futures

Posted on June 2, 2022 By Harbourfront Technologies

In a previous post, we discussed the lead-lag relationship between the volatility index, VIX, and SPX futures. In this post, we are going to look at the relationship between the VIX index and VIX futures. The volatility index, VIX, is a measure of the stock market’s expectation of volatility over …

Momentum in the Option Market

Posted on May 30, 2022 By Harbourfront Technologies

In the financial market, momentum is the tendency for assets to continue moving in the same direction. It is a reflection of the underlying strength or weakness of an asset’s price action and can be used to identify trends. Momentum is one of the most pervasive market phenomena and can …

How Interest Rates Affect Equity Markets?

Posted on May 27, 2022 By Harbourfront Technologies

Interest rates are a determinant factor in the pricing mechanism of public markets. When interest rates go up, the cost of borrowing increases, and this affects economic activity and company profits. Equity markets are sensitive to changes in interest rates because they affect corporate profitability and the cost of capital. …

Determining Implied Volatilities of American Options Using the Willow Tree Method

Posted on May 24, 2022 By Harbourfront Technologies

An option’s implied volatility is a measure of the option’s expected price fluctuation. It is a forward-looking, market-based estimate of volatility and is determined by the market price of the option. Implied volatility is a key ingredient in options pricing models such as the Black-Scholes model. It can be used …

Forecasting Earnings and Returns

Posted on May 21, 2022 By Harbourfront Technologies

Data science and machine learning have made great progress in the past few years. They are being applied successfully in many areas such as computer vision, natural language processing, and predictive analytics. In the financial market, however, there are still many uncertainties and risks that the new technology cannot predict. …

Why Do Investors Lose Money?

Posted on May 18, 2022 By Harbourfront Technologies

Behavioural finance is the study of how financial behaviour affects economic decisions and market outcomes, and how those decisions and outcomes are affected by psychological, social, and cultural factors. It is a relatively new field that combines elements of economics, psychology, and sociology. Behavioural finance research has shown that people …