Can the SP500 Index be Predicted?

Posted on March 31, 2021 By Harbourfront Technologies

In a previous post, we presented a time series analysis of the SP500 index and demonstrated its mean-reverting and trending behaviour. Subsequently, we designed trading strategies exploiting these mean-reverting and trending properties of SP500. Does this mean that the SP500, and stock market indices in general, can be predicted? In …

Mean-Reverting Trading System-Quantitative Trading in Python

Posted on March 26, 2021 By Harbourfront Technologies

In a previous post, we demonstrated the mean-reverting and trending properties of SP500. In this follow-up post, we will develop a simple trading system exploiting the mean-reverting behaviour of this market index. To generate buy and sell signals, we will use simple moving averages as noise filters. The simple moving …

Autocorrelation Properties of SP500-Quantitative Trading in Python

Posted on March 20, 2021 By Harbourfront Technologies

A technical or quantitative trading system on a linear (i.e. delta 1) instrument is basically a bet on the autocorrelation of the underlying. The autocorrelation properties of the underlying can be examined directly through autocorrelation functions or indirectly through the Hurst exponent. In this post, we are going to examine …

Pricing of Weather Derivatives Using Monte Carlo Simulations

Posted on February 28, 2021 By Harbourfront Technologies

Derivatives are financial products whose values are determined by the current price of the underlying asset or portfolio. Weather derivatives are a particular class of financial instruments that individuals or companies can use in support of risk management in relation to unpredictable or adverse weather conditions. While some may see …

How to Determine Implied Dividend Yield-Derivative Valuation in Excel

Posted on February 27, 2021 By Harbourfront Technologies

Dividend yield is an input into the option valuation model that often receives little attention from practitioners. This is probably because the majority of companies do not pay dividends. And for those that pay, an inaccuracy in the estimation of the dividend yield often has a small impact on the …

Exponentially Weighted Historical Volatility in Excel-Volatility Analysis in Excel

Posted on February 19, 2021 By Harbourfront Technologies

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 …

Modern Portfolio Theory-Effect of Diversification on the Optimal Portfolio-Portfolio Management in Python

Posted on January 31, 2021 By Harbourfront Technologies

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 …

Modern Portfolio Theory-Searching For the Optimal Portfolio-Portfolio Management in Python

Posted on January 25, 2021 By Harbourfront Technologies

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 …

The Willow Tree Method, an Advanced Option Pricing Model

Posted on January 19, 2021 By Harbourfront Technologies

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 …

Hedging Market Risks Using Volatility Estimators-Are Sophisticated Methods Better?

Posted on December 28, 2020 By Harbourfront Technologies

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 …