A convertible bond is a type of hybrid security that acts like a traditional bond but includes an option to convert the bond into a predetermined number of shares of the issuing company’s stock. This feature offers investors the potential to benefit from rising stock prices while providing downside protection …

VIX futures are financial contracts that allow investors to trade on the expected future volatility of the S&P 500 Index, as measured by the VIX (Volatility Index). These contracts provide a way to hedge against or speculate on changes in market volatility. VIX futures are popular in times of uncertainty, …

The volatility risk premium (VRP) refers to the compensation investors receive for bearing the risk of higher-than-expected market volatility, often manifesting as the difference between implied and realized volatility in options markets. The VRP is not constant; it changes according to the market regime. Reference proposed a timing scheme …

The Hurst exponent is a statistical measure used to evaluate the long-term memory or autocorrelation of a time series, indicating whether a system exhibits trending behavior, mean-reverting characteristics, or randomness. A Hurst exponent greater than 0.5 signifies the existence of long-range dependence, implying that previous trends are prone to persisting …

Volume is an essential, integral market data. However, it receives much less attention in research literature compared to price data. Understanding and being able to model volume dynamics is important because buy-side firms must plan and time their trades to avoid significantly impacting the market, revealing their identities, and incurring …

Dividend futures are financial derivatives that allow investors to speculate on or hedge against the future dividend payments of a specific company or index. Unlike traditional equity futures, which are based on the price of the underlying asset, dividend futures are directly linked to the dividends that a company or …

A covered call is an options strategy where an investor holds a long position in a stock and simultaneously sells a call option on the same stock. This strategy allows the investor to generate additional income from the premium received by selling the call option. The trade-off is that if …

Pairs trading is a market-neutral strategy that involves taking long and short positions in two correlated assets to profit from their relative price movements. However, the profitability of pairs trading has been diminishing due to, in part, its growing popularity. Reference examined the profitability of pairs trading in the …

The relationship between two assets can be examined using various techniques such as correlation, lagged correlation, cointegration etc. Reference presented a new method called Quantile-on-Quantile Spillover Analysis to examine the relationship between two assets. This approach involves estimating Quantile Vector Autoregression (QVAR) models across different quantiles and then calculating …

A common belief in strategy design is that ‘more data is better.’ But is this always true? Reference examined the impact of the quantity of data in predicting realized volatility. Specifically, it focused on the accuracy of volatility forecasts as a function of data sampling frequency. The study was …