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 …

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 …

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 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 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 …

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 …

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 …

Ethereum (ETH) is a cryptocurrency that resembles a combination of a currency, a stock, and a commodity. It is a non-dividend-paying crypto asset with a dynamic supply change parameter. Ethereum options have been traded since 2019. Deribit is the largest ETH options exchange by volume, with a market share of …

Forecasting is important in finance, as it helps investors, analysts, and institutions make informed decisions under uncertainty. Up to now, most forecasting techniques have relied on traditional time series methods, such as ARIMA, GARCH, and exponential smoothing. However, with recent advancements in machine learning and artificial intelligence, these technologies have …

Tail risk hedging is a strategy designed to protect portfolios against extreme market moves that occur infrequently but have a significant impact when they do. These “tail events” lie at the far ends of a return distribution and often coincide with financial crises, sharp market crashes, or systemic shocks. A …