Author: Harbourfront Technologies

How the Airlines Hedge Fuel Costs

The recent rising cost of airline tickets can be attributed in part to the escalating fuel prices, which significantly affect operating expenses for airlines. To counter the adverse impact of fuel price volatility, airlines often adopt a strategic approach known as fuel hedging. This practice involves entering into financial contracts …

Using the VIX for Position Sizing

Position sizing is a critical aspect of trading that directly influences the risk and potential reward of each trade. It involves determining the appropriate amount of capital to allocate to a specific trade based on factors such as account size, risk tolerance, and market conditions. Effective position sizing aims to …

Evaluating Trading Strategies Using Economic Criteria

In the realm of trading strategy development, assessing strategy effectiveness can be approached through two distinct avenues. One approach involves evaluating the efficacy of a predictive method by employing statistical measures to gauge its accuracy and predictive power. Alternatively, effectiveness can be gauged by directly evaluating the strategy’s profit and …

What Caused the Increase in Correlation?

Correlation in the stock market refers to the statistical relationship between the price movements of different stocks or assets. It measures the degree to which these price changes tend to occur together or in opposite directions over a specific period. Positive correlation implies that stocks move in the same direction, …

Filtering Stocks Based on Volatilities

Stock volatility refers to the degree of variation in a stock’s price over time. It is a measure of the magnitude of price fluctuations, reflecting the market’s uncertainty and the potential for rapid changes in an asset’s value. High stock volatility signifies greater price swings, indicating a higher level of …

Use of the Real-World Measure in Portfolio Management

In the realm of finance, the risk-neutral measure takes precedence in pricing financial derivatives. However, the real-world measure remains significantly valuable and indispensable across various domains. It plays a pivotal role in risk management and asset/liability applications, facilitating comprehensive evaluation and mitigation of risks. Real-world measures are useful for simulation-based …

Factor Investing With Timing

Factor investing, also known as smart beta or systematic factor investing, is an investment strategy that involves selecting and weighting securities based on specific characteristics or factors believed to drive their performance. These factors can include value, momentum, size, quality, and low volatility, among others. The idea behind factor investing …

Credit Risk Models for Cryptocurrencies

Credit risk is a fundamental aspect of financial risk management that arises from the possibility of borrowers or counterparties failing to meet their contractual obligations. It refers to the potential of a borrower defaulting on their debt repayments, leading to potential financial losses for lenders or investors. Credit risk is …

Dynamics of the Volatility of Volatility Index, VVIX

The VVIX, also known as the Volatility of Volatility Index, is a measure that tracks the expected volatility of the CBOE Volatility Index (VIX). As the VIX reflects market participants’ expectations for future volatility in the S&P 500 index, the VVIX provides insights into the market’s perception of volatility uncertainty …

Can AI Replace Human Programmers?

Since the introduction of ChatGPT, numerous quantitative traders and portfolio managers have been intrigued by the potential of utilizing it to develop quantitative and algorithmic trading systems. The field of quantitative finance has been abuzz with excitement and speculation about the capabilities of ChatGPT. However, amidst the hype, it is …