Variational Autoencoders for Arbitrage-Free Volatility Modeling

Posted on March 24, 2025 By Harbourfront Technologies

Machine learning and AI are transforming investing by enabling data-driven decision-making, uncovering hidden patterns, and automating complex strategies. From algorithmic trading and portfolio optimization to risk management and sentiment analysis, AI-driven models process vast amounts of data with speed and precision, identifying opportunities that traditional methods might miss. Most ML …

Improving Portfolio Management with Volatility of Volatility

Posted on March 20, 2025 By Harbourfront Technologies

Managing portfolios using volatility as a filter has proven effective. Reference builds on this research by proposing the use of volatility of volatility for portfolio management. The rationale behind using volatility of volatility is that it represents uncertainty. Unlike risk, which refers to situations where future returns are unknown …

Incorporating Liquidity into Option Pricing: a Stochastic Approach

Posted on March 16, 2025 By Harbourfront Technologies

Liquidity is an overlooked research area, yet it plays a crucial role in financial markets. Trading system developers often use the bid-ask spread as a proxy for liquidity, but this approach is less effective in the options market. Reference proposes a method for integrating liquidity into the option pricing …

Stock and Volatility Simulation: A Comparative Study of Stochastic Models

Posted on March 12, 2025 By Harbourfront Technologies

Stress testing and scenario analysis are essential tools in portfolio management, helping portfolio and risk managers assess potential vulnerabilities under extreme market conditions. By simulating adverse scenarios such as financial crises, interest rate shocks, or geopolitical events, these techniques provide insights into how a portfolio might behave under stress and …

Are Weekend Gaps Always Filled? A Look at Stock Indices

Posted on March 8, 2025 By Harbourfront Technologies

The weekend price gap is a well-known phenomenon in financial markets, particularly in assets that trade continuously during the week but pause over the weekend, such as stocks, futures, and options. When markets reopen after the weekend, prices sometimes experience a gap up or down due to news, geopolitical events, …

How Bitcoin Options Compare to Equity Index Options: Volatility, Correlation, and Skew

Posted on March 4, 2025 By Harbourfront Technologies

Bitcoin options are derivative contracts that grant investors the right, but not the obligation, to buy or sell Bitcoin at a predetermined price before a specified expiration date. Major cryptocurrency exchanges offer options on Bitcoin and other cryptocurrencies, including select tokens. However, the vast majority of trading takes place on …

Forecasting Covered Call ETF Performance

Posted on February 28, 2025 By Harbourfront Technologies

A covered call ETF is an exchange-traded fund that employs a covered call strategy to generate income while maintaining exposure to the underlying assets. This strategy involves holding a portfolio of stocks and selling (or “writing”) call options on those stocks to collect option premiums. Covered call ETFs are particularly …

Applying Prospect Theory to Crypto Valuation and Portfolio Diversification

Posted on February 24, 2025 By Harbourfront Technologies

As cryptocurrencies become mainstream and gain acceptance, there is still no coherent investment framework for valuing them. Reference explores the differences between equity and crypto investors and proposes an investment framework for cryptocurrencies based on the prospect theory. The differences between equity and crypto investors are: Stock market investors …

Measuring Stock Market Dispersion: The Herd Behavior Index Approach

Posted on February 20, 2025 By Harbourfront Technologies

Dispersion in the stock market refers to the degree of variation in individual stock returns within an index or sector. High dispersion indicates significant differences in performance among stocks. Conversely, low dispersion suggests that stocks are moving more uniformly, often driven by broad market trends. Usually, dispersion is measured by …

Technical Trading Strategies: Profitable or Just Curve-Fitting?

Posted on February 16, 2025 By Harbourfront Technologies

Technical analysis (TA) is a trading approach that evaluates past price movements and volume data to forecast future market trends. It relies on price patterns, indicators, and statistical measures rather than fundamental factors. Investors use tools like moving averages, RSI, and Bollinger Bands to identify trends, support and resistance levels, …