As we know, quantitative trading involves developing and executing trading strategies based on quantitative research. The quants traders start with a hypothesis and then conduct extensive data crunching and mathematical computations to identify profitable trading opportunities in the market. The most common inputs to these mathematical models are the price and the volume data, though […]
Quantitative Finance
Why Financial Traders Should Learn R
If you work in the finance industry, especially as a trader, then I bet you can’t live a day without Excel spreadsheets. Excel is one of the most important tools for traders and investors. However, with time, the nature of financial data has become quite complex. The traders need to deal with much larger amounts […]
Quantitative Trading Vs. Algorithmic Trading
While talking about quants and trading desks, you will often come across terms such as quantitative trading and algorithmic trading. So, what is quantitative trading and how does it differ from algorithmic trading. Let’s take a look. Quantitative trading involves the development of trading strategies with the help of advanced mathematical models. It involves conducting […]
Understanding Hypothesis Testing and p-value
Behavioral scientists, market researchers, astrophysicists, drug testers all seek to better understand the target group. Often it is next to impossible to assess the entire population. Inferential statistical testing is instead done on a sample that exhibits most if not all characteristics of the population. This is done using hypotheses testing. Hypothesis (plural form being […]
Properties of Uniform Distribution
Definition The most basic form of continuous probability distribution function is called the uniform distribution. It is a rectangular distribution with constant probability and implies the fact that each range of values that has the same length on the distributions support has equal probability of occurrence. This belongs to the category of maximum entropy probability […]
Calculate and Interpret Covariance and Correlations
Covariance defined In probability theory and statistics, covariance measures the comovement between two variables i.e. the amount by which the two random variables show movement or change together. If the two variables are dependent then the covariance can be measured using the following formula: For two independent variables the joint densities are separated and the […]
FAQs on Quantitative Finance
Getting agreement between finance theory and finance practice is important like never before. In the last decade the derivatives business has grown to a staggering size, such that the outstanding notional of all contracts is now many multiples of the underlying world economy. No longer are derivatives for helping people control and manage their financial […]
Hot Jobs: Five Careers in Quantitative Analysis
Quantitative analysis is the process of analyzing financial data with the goal being to form risk models and financial strategies based on mathematical formulas. These types of jobs require a high degree of skill and strong mathematical skills. For some positions, you will need a PhD in economics or finance. However, even though these positions […]
Arithmetic Vs. Geometric Stock Returns
This video provides clarity about the confusion over the stock returns. The expected return of a stock is ambiguous because, if we assume returns are normal, then price levels are lognormal. In which case, the mean does not equal the median future stock price. Consider these two questions: 1. What is the average return per […]
How to Scale Autocorrelated Returns?
We know that the square root rule can be used to scale volatility with time. This rule assumes that the returns are independent and identically distributed. However, this assumption is not very realistic. This video illustrates a scaling factor that adjusts the square root rule for for autocorrelation. This video is developed by David from […]