Genetic algorithm (GA) is a search heuristic that is inspired by Charles Darwin’s theory of natural selection. This algorithm mimics the process of natural selection in order to find optimal solutions to a given problem. GA has been used in various fields such as engineering, economics, and finance. In the …

In the financial world, time series analysis is frequently used to predict stock prices, interest rates, and currency exchange rates. Econometric models are a type of time series analysis that uses historical data to forecast future asset prices and volatilities. Reference applied the autoregressive integrated moving average (ARIMA) model …

Dispersion trading is an investment strategy that is used to capitalize on the discrepancies in volatilities between an index and its constituents. The strategy involves buying or selling the index options and simultaneously buying or selling the constituent stocks’ options. This results in a long/short volatility portfolio. Reference provided …

Technical indicators are mathematical calculations based on historic price, volume, or open interest information that aim to forecast future market behavior. In general, technical analysis focuses on trends and patterns in the price of an underlying instrument such as a stock or commodity. We recently discussed a paper that studied …

Many investors use fundamental or technical analysis when making investment decisions, with many only using technical analysis when picking their trades. Many traders use technical indicators to spot potential trading opportunities. Technical indicators are mathematical calculations based on the price, volume, or open interest of an underlying asset. They fall …

Futures spread trading is a type of trading in which two different futures contracts are bought and sold at the same time, with the aim of profiting from the price difference between the two contracts. If the futures contracts are on the same underlying asset, then the spread is referred …

One of the most important steps in developing a profitable statistical arbitrage trading strategy is choosing the right pairs of stocks to trade. This can be a difficult and time-consuming process, but it is essential in order to find pairs that are likely to produce profitable results. There are a …

Statistical arbitrage is a classic quantitative trading strategy that attempts to take advantage of statistical differences in the prices of assets. The strategy is based on the idea that if two assets are not perfectly correlated, then there is an opportunity to profit from the difference in their prices. Statistical …

Short volatility is a popular trading strategy that seeks to profit from selling volatility through Exchange Trade Notes or listed options. It is understood that the profit comes from the volatility risk premium, i.e. the fact that implied volatility generally overstates actual volatility. Some investors even consider this overstatement a …

We have discussed trading strategies for harvesting volatility risk premium. In a similar context, Reference examined the use of butterfly option positions as a trading strategy for long-term investors. An option butterfly position is a limited risk, non-directional options trading strategy that is designed to take advantage of a …