What It Takes to Win at Quantitative Investing

Posted on November 12, 2020 By Harbourfront Technologies

A recent podcast on Bloomberg offers some interesting perspectives on quantitative investing. Interest in quantitative investing strategies continues to grow; however, as the space gets more competitive, making money and winning gets harder and harder. Computation costs alone can be prohibitive. On the latest episode, we speak with Columbia Business …

Forecasting Implied Volatility with ARIMA Model-Volatility Analysis in Python

Posted on October 31, 2020 By Harbourfront Technologies

In a previous post, we presented theory and a practical example of calculating implied volatility for a given stock option. In this post, we are going to implement a model for forecasting the implied volatility. Specifically, we are going to use the Autoregressive Integrated Moving Average (ARIMA) model to forecast …

FASB Proposes Scope Clarification for Reference Rate Relief

Posted on October 30, 2020 By Harbourfront Technologies

On July 27, 2017 the Financial Conduct Authority, the U.K.’s top regulator, tasked with overseeing Libor, announced the benchmark will be phased out by 2021. Alternative risk-free rates are being set up for the different currencies. For the US Dollar, the US Fed’s Alternative Reference Rates Committee (ARRC) has recommended …

Forecasting Volatility with GARCH Model-Volatility Analysis in Python

Posted on October 26, 2020 By Harbourfront Technologies

In a previous post, we presented an example of volatility analysis using Close-to-Close historical volatility. In this post, we are going to use the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to forecast volatility. In econometrics, the autoregressive conditional heteroscedasticity (ARCH) model is a statistical model for time series data that …

Implied Volatility of Options-Volatility Analysis in Python

Posted on September 26, 2020 By Harbourfront Technologies

Volatility measures market expectations regarding how the price of an underlying asset is expected to move in the future. There are two types of volatility: historical volatility and implied volatility. In a series of previous posts, we presented methods and provided Python programs for calculating historical volatilities. In this post, …

Are AI-Powered Hedge Funds Outperforming?

Posted on September 9, 2020 By Harbourfront Technologies

Last month, institutionalinvestor.com reported that AI-powered hedge funds outperformed their peers, Hedge funds with artificial intelligence capabilities showed a huge competitive edge over investors that didn’t use AI, new research indicates. AI-led hedge funds produced cumulative returns of 34 percent in the three years through May, a report Tuesday from …

Simplified Accounting for Convertible Bonds

Posted on September 8, 2020 By Harbourfront Technologies

Convertible bonds are complex financial instruments. However, the accounting treatment for convertible bonds has been simplified. The Financial Accounting Standards Board (FASB) released new guidance last month on accounting for convertible instruments and contracts in an entity’s own equity… Convertible instruments are debt or equity instruments (or features) that either …

How to Calculate Stock Beta in Excel-Replicating Yahoo Stock Beta

Posted on September 8, 2020 By Harbourfront Technologies

In a previous post, we presented a method for calculating a stock beta and implemented it in Python. In this follow-up post, we are going to implement the calculation in Excel. We continue to use Facebook as an example. What is beta? Recall that, In finance, the beta (market beta …

Valuation of Executive Stock Options Using a Closed-Form Formula

Posted on September 3, 2020 By Harbourfront Technologies

Executive stock options usually have complex payoffs. To price them, we often use the binomial tree method or Monte Carlo simulations. … a lattice model can be designed to accommodate dynamic assumptions of expected volatility and dividends over the option’s contractual term, and estimates of expected option exercise patterns during …

Valuation of Callable Putable Bonds-Derivative Pricing in Python

Posted on August 29, 2020 By Harbourfront Technologies

In a previous post, we presented a method for pricing a fixed-rate bond. In this post, we are going to discuss valuation of a callable bond. A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the …