In a previous post, we demonstrated the mean-reverting and trending properties of SP500. We subsequently developed a trading system based on the mean-reverting behavior of the index. In this installment, we will develop a trend-following trading strategy. Trend following or trend trading is a trading strategy according to which one …

Investors can use various hedging techniques to mitigate the risks associated with their equity and debt instruments. These techniques include the use of options, swaps, forwards, futures, etc. Usually, these use derivates, which are financial securities that get their value from an underlying asset or group of assets. One method …

In a previous post, we presented a time series analysis of the SP500 index and demonstrated its mean-reverting and trending behaviour. Subsequently, we designed trading strategies exploiting these mean-reverting and trending properties of SP500. Does this mean that the SP500, and stock market indices in general, can be predicted? In …

In a previous post, we demonstrated the mean-reverting and trending properties of SP500. In this follow-up post, we will develop a simple trading system exploiting the mean-reverting behaviour of this market index. To generate buy and sell signals, we will use simple moving averages as noise filters. The simple moving …

A technical or quantitative trading system on a linear (i.e. delta 1) instrument is basically a bet on the autocorrelation of the underlying. The autocorrelation properties of the underlying can be examined directly through autocorrelation functions or indirectly through the Hurst exponent. In this post, we are going to examine …

Derivatives are financial products whose values are determined by the current price of the underlying asset or portfolio. Weather derivatives are a particular class of financial instruments that individuals or companies can use in support of risk management in relation to unpredictable or adverse weather conditions. While some may see …

Dividend yield is an input into the option valuation model that often receives little attention from practitioners. This is probably because the majority of companies do not pay dividends. And for those that pay, an inaccuracy in the estimation of the dividend yield often has a small impact on the …

Historical volatility (HV) is a useful measure to gauge market uncertainty. Recall that, In finance, volatility (usually denoted by σ) is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market …

In the previous installments, we presented the concept of Modern Portfolio Theory. We also provided an optimization algorithm, written in Python, for searching for the optimal portfolio. To continue, we are going to perform some numerical experiments. Specifically, we are going to use the portfolio optimization program developed in the …

In the previous installment, we presented a description of the Model Portfolio Theory and provided a concrete example in Python. We also explained the concept of an Efficient Frontier and provided a visual presentation of it. Recall that, … the efficient frontier (or portfolio frontier) is an investment portfolio which …