Black–Scholes model is a celebrated option pricing model used in financial markets. It was published by Fischer Black, Myron Scholes, and Robert Merton. Scholes and Merton received the 1997 Nobel Memorial Prize in Economic Sciences for their work (Black died before the prize announcement). The model is now widely used …

Options volume has been shown to be a predictor of future market returns. By tracking the level of options volume, traders can get a sense of where the market is heading and make more informed investment decisions. On a similar topic, Reference examined the Option Volume Imbalance (OVI) and …

In the investing world, there are a variety of popular trading strategies that investors use to make money. One of the most popular is trend-following. This involves trying to identify when an asset is in an uptrend or downtrend and then buying or selling accordingly. While this approach can be …

The herd effect is when people do not pay attention to what they know. Instead, they follow what other people are doing. It is found that people tend to herd based on other investors’ activity, and not only their own behavior. They also tend to follow more extreme decisions made …

Quantitative trading, which relies on computer algorithms to make decisions about when and how to trade, has become a more dominant form of trading in equity markets. This type of trading employs mathematical models to identify opportunities and optimize trades. While quantitative trading is prevalent in equity markets, it is …

We have previously discussed the price dynamics of the SP500 volatility index, VIX. A recent article investigated the trending/mean-reverting properties of several volatility indices. The paper’s objective is to use the autoregressive fractionally integrated moving average (ARFIMA) model to extend research on Hurst exponent to the universe of volatility …

We have discussed previously how a complex trading system can be profitable. In a similar context, Reference applied a genetic algorithm to pairs trading. The authors developed a sophisticated genetic optimization algorithm that utilizes Bollinger Bands and correlation-coefficient for pairs trading. The algorithm encoded six important variables into a …

Forward contracts are a crucial part of hedging and speculation for investors. These contracts allow two parties to buy or sell an asset at a specific price and future time. Usually, they also include the commodity, delivery date, and amount for the agreement. Forward contracts may come in many forms …

Optimal portfolio allocation is a hard problem to solve in finance. Determining the best way to allocate assets and strategies across different investment vehicles in order to achieve the best possible risk-adjusted return is a complex task that has been studied by mathematicians and financial experts for many years. Despite …

Covid-19, the novel coronavirus, has been a source of anxiety for markets and individuals around the world since its outbreak in December 2019. Many traders have been looking for ways to use the information on the spread of the virus to predict market movements. While there are indicators that can …