JonathanBlack Scholes, Options, Straddles, Strangles, Volatility, Volatility ModelingBlack-Scholes, Implied Volatility, Options, Straddles, Strangles, Volatility

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Home Archive by Category "Volatility Modeling"

JonathanConvexity, Correlation, Factor Risk, Higher Moments, Multifactor Models, Risk Management, S&P500 Index, Strategy Robustness, Tail Risk, VIX Index, VIX Index, Volatility, Volatility ETF Strategy, Volatility ModelingConvexity, Correlation, Factor Risk, Kurtosis, Leveraged ETFs, MultiFactor Models, Sem--deviation, Skewness, Sortino, Tail Risk, Volatility

As markets continue to make new highs against a backdrop of ever diminishing participation and trading volume, investors have legitimate reasons for being concerned about prospects for the remainder of 2016 and beyond, even without consideration to the myriad of economic and geopolitical risks that now confront the US and global economies. Against that backdrop,…

JonathanRelative Value, VIX Futures, VIX Index, Volatility ETF Strategy, Volatility Modeling1 commentCarry Trade, Contango, VIX Futures, VIX Index, Volatility ETFs, VXX

By way of introduction we begin by reviewing a well known characteristic of the iPath S&P 500 VIX ST Futures ETN (NYSEArca:VXX). In common with other long-volatility ETF /ETNs, VXX has a tendency to decline in value due to the upward sloping shape of the forward volatility curve. The chart below which illustrates the fall in…

JonathaneMini Futures, Genetic Programming, Index, Index Trading, Regime Shifts, Regime Switching, S&P500 Index, VIX Index, VIX Index, Volatility Modeling1 commentIndex Trading, Regime Switching, S&P 500 Index, VIX Index

In this post I want to discuss ways to make use of signals from relevant market indices in your trading. These signals can add value regardless of whether you trade algorithmically or manually. The techniques described here are one of the most widely applicable in the quantitative analyst’s arsenal. Let’s motivate the discussion by looking…

JonathanETFs, Hedge Funds, VIX Index, Volatility ETF Strategy, Volatility ModelingETFs, Hedge Funds, Volatility

Grace Kim, Brand Director at DarcMatter, does a good job of setting out the pros and cons of ETFs vs hedge funds for the family office investor in her LinkedIn post. She points out that ETFs now offer as much liquidity as hedge funds, both now having around $2.96 trillion in assets. So, too, are her…

JonathanAlpha, Forecasting, Natural Gas Futures, Regime Shifts, Signal Processing, Systematic Strategies, Volatility Modeling

Market Noise and Alpha Signals One of the perennial problems in designing trading systems is noise in the data, which can often drown out an alpha signal. This is turn creates difficulties for a trading system that relies on reading the signal, resulting in greater uncertainty about the trading outcome (i.e. greater volatility in system performance). According to…

JonathanETFs, Hedge Funds, Relative Value, VIX Index, Volatility ETF Strategy, Volatility ModelingLong/Short, Relative Value, Volatility, Volatility ETFs

The popular VIX blog Vix and More evaluates the performance of the VIX ETFs (actually ETNs) and concludes that all of them lost money in 2015. Yes, both long volatility and short volatility products lost money! Source: Vix and More By contrast, our Volatility ETF strategy had an exceptional year in 2015, making money in…

2015 proved to be an extremely difficult year for volatility strategies generally. The reasons are not difficult to fathom: the sea-change in equity markets resulting from the Fed’s cessation of quantitative easing (for now) produced a no-less dramatic shift in the volatility term structure. During the summer months spot and front-month volatility surged, producing an…

JonathanPortfolio Management, Risk Management, Volatility ETF Strategy, Volatility ModelingPortfolio Improvement, Portfolio Management

Equity investors and long-only portfolio managers are constantly on the lookout for ways to improve their portfolios, either by yield enhancement, or risk reduction. In the case of yield enhancement, the principal focus is on adding alpha to the portfolio through stock selection and active management, while risk reduction tends to be accomplished through diversification….

JonathanAlgorithmic Trading, High Frequency Trading, VIX Index, Volatility ETF Strategy, Volatility Modeling

As we have discussed before, there is no standard definition of high frequency trading. For some, trading more than once or twice a day constitutes high frequency, while others regard anything less than several hundred times a session as low, or medium frequency trading. Hence in this post I have referred to “daytrading” since we…

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