In the financial markets, the momentum anomaly is a phenomenon in which financial assets that have had recent positive returns tend to continue performing well, while those with recent negative returns tend to keep declining. It is also known as the ‘momentum effect’ and has been observed in stocks, commodities, …

Option pricing is usually carried out in the risk-neutral world where the market participants are assumed to be indifferent between taking a certain payoff or investing in an asset with that same expected return. Mathematically, an option’s price is the expected value of its payoff in the risk-neutral measure discounted …

A butterfly option position is an advanced trading strategy that requires a combination of calls and/or puts with three different strike prices of the same maturity. It’s a non-directional options trading strategy that is commonly used when an investor believes that the underlying asset’s price will remain relatively stable in …

Credit risk is the probability of loss from a borrower or counterparty. It is also known as default risk and refers to the potential that an entity may not be able to meet its obligations when due. Credit risk can arise from various sources including individual borrowers, companies, government entities, …

The Fractal Market Hypothesis (FMH) is a theory that suggests that financial markets behave in the same way as natural phenomena and are subject to the same physical laws as found in nature. It suggests that financial markets are composed of similar patterns which repeat over and over again at …

A technical trading system is a set of rules that define how to enter, exit, and manage trades in the financial markets. It is based on technical analysis which seeks to identify trends and patterns by analyzing past price movements. It includes precise criteria for when to buy or sell …

A trading system is a set of rules that define when to buy or sell a security. The purpose of a trading system is to take the emotion out of trading and help the trader make objective decisions. There are many different types of trading systems, but all systems have …

Volatility of an asset is the measure of how much its price changes over time. The higher the volatility, the greater the price swings. There are two types of volatility: historical and implied. Historical volatility is a measure of how much an asset’s price has fluctuated in the past. Implied …

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months. It is visible in industrial production, employment, real income, and other measures of economic activity. A recession generally occurs when there is a widespread drop in spending (an adverse demand shock). …

Technical analysis is a technique that attempts to forecast future price movements by analyzing past price data and market trends. Technical analysts believe that all relevant information about a security is reflected in its price, and therefore believe that studying price changes can provide valuable insights into where the security …