Crypto Treasury Models: Balance Sheet Risk and Bitcoin Price Dependency

Posted on May 27, 2025 By Harbourfront Technologies

As crypto currencies gain broader acceptance, some corporations have begun including crypto in their balance sheets, forming new “crypto treasury” models. However, these models entail significant financial risks. Digital asset price volatility can translate into earnings variability and elevated refinancing risk—effects that are amplified when acquisitions are debt-financed. Reference …

Risk, Timing, and Strategy: Key Differences in 0DTE Options Trading Styles

Posted on May 23, 2025 By Harbourfront Technologies

We have discussed the impact of 0DTE options on the market, drawing from both practitioner insights and academic literature. Both sources point to the conclusion that 0DTE options have little or almost no impact on the market; they do not increase market volatility, contrary to what many investors have argued. …

Market Regimes and Strike Selection: A Case Study on the Call Condor

Posted on May 19, 2025 By Harbourfront Technologies

Parameter optimization is a technique used in trading strategy design. It is used to identify the best set of parameters for maximizing performance and to study the strategy dynamics in order to gain insights. However, while this technique is frequently applied to linear instruments, it is used less often on …

Trend vs. Mean Reversion: A Statistical Physics Approach to Financial Markets

Posted on May 15, 2025 By Harbourfront Technologies

Trend and mean reversion are two prevalent forces in financial markets. Studying their interplay is important, as it provides clues for developing accurate timing models. Reference formally examines the relationship between trend and mean reversion in financial markets, across timeframes ranging from intraday to monthly, and spanning over 300 …

Forecasting Volatility in Digital Assets: A Comparative Study

Posted on May 11, 2025 By Harbourfront Technologies

Modeling the volatility of cryptocurrencies is important for understanding and managing risk in these markets. Reference provides a literature review of various volatility prediction approaches and evaluates three models: GARCH, EGARCH, and EWMA. The EGARCH model is an extension of the GARCH model that accounts for the asymmetric impact …

Joint Calibration of SPX and VIX Options Using the Willow Tree Method

Posted on May 7, 2025 By Harbourfront Technologies

The willow tree method is a powerful technique with many applications in derivative pricing. We have discussed how it can be used to determine the implied volatilities of American options. It can also be applied to price convertible bonds by simultaneously accounting for equity and credit risks. In addition, it …

The Bitcoin-Gold Ratio as a Predictor of Stock Market Returns

Posted on May 3, 2025 By Harbourfront Technologies

The ratio of gold prices to other asset classes has been shown to be a useful predictor of stock market returns. We previously discussed how the gold-oil ratio serves as one such indicator. Continuing this line of inquiry, Reference examines the informational value of the Bitcoin-gold (BG) price ratio. …

VIX vs. SPX Options: Skewness, Term Structure, and Hedging Implications

Posted on April 29, 2025 By Harbourfront Technologies

VIX index options have become the second most traded contracts on the CBOE, surpassed only by S&P 500 (SPX) options. However, unlike SPX options, where the term structure of volatility has been extensively studied, the volatility term structure of VIX options has received far less attention. Reference fills this …

Enhancing Trading Strategies Using Model Uncertainty

Posted on April 25, 2025 By Harbourfront Technologies

Most trading systems focus on algorithms for generating entry and exit signals. When the performance deteriorates, developers often try to introduce additional filters and/or modify system parameters. Reference applied a novel technique, called Dynamic Model Averaging (DMA), to improve model performance. Basically, DMA estimates model uncertainty, and a trade …

Volatility Risk Premium Seasonality Across Calendar Months

Posted on April 21, 2025 By Harbourfront Technologies

Seasonality in investing refers to the tendency of financial markets or specific assets to exhibit predictable patterns at certain times of the year. These patterns can arise due to recurring economic, behavioral, or institutional factors. Understanding and analyzing seasonal trends can help investors time their trades more effectively and enhance …