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JonathanCorrelation, Dispersion, Hedge Funds, Quantitative Equity Strategy, Systematic Strategies, Systematic Volatility Strategy, Volatility, Volatility ETF StrategyHedge Fund, Quantitative Equity Strategy, Systematic Volatility Strategy

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JonathanAsset processes, Equities, Fat Tails, Financial Engineering, Fractional Brownian Motion, Geometric Brownian Motion, Hurst Exponent, Implied Volatility, Interest Rate Models, Jump Diffusion, Long Memory, Mathematica, Mean Reversion, Model Review, Modeling, Options, Ornstein-Uhlenbeck, Quantitative finance conference Derman Dupire forecasting volatility, Stationarity, Stochastic Differential Equations, Stochastic Volatility, Vasiceck, Volatility, Volatility Modeling, Wiener ProcessAAPL, Asset Processes, Cox-Ingersoll-Ross, Fat Tails, Geometric Brownian Motion, Heston Model, Jump Diffusions, Long Memory, Mean Reversion, Merton, Modeling, Ornstein-Uhlenbeck, Stochastic Calculus, Vasiceck, Volatility Smiles and Skews, Volatility Surface

Introduction Over the last twenty five years significant advances have been made in the theory of asset processes and there now exist a variety of mathematical models, many of them computationally tractable, that provide a reasonable representation of their defining characteristics. While the Geometric Brownian Motion model remains a staple of stochastic calculus theory, it…

JonathanFutures, High Frequency Trading, Scalping, VIX Futures, VIX Index, VolatilityHigh Frequency Trading, Scalping, VIX Futures, VIX Index

Our high frequency VIX scalping strategy is now the #1 top performing strategy on Collective2, with returns of over 2700% since April 2016 with a Sharpe Ratio above 10 and Profit Factor of 2.8. For more background on HFT scalping strategies see the following post:

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

Straddles and Strangles

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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,…

JonathanFat Tails, Mathematica, Regime Shifts, Regime Switching, Uncategorized, Volatility, Volatility ModelingFat Tails, Jump Diffusion, Kurtosis, Non-Normal, Regimes, Stationarity, Volatility Smile

In this quantitative analysis I explore how, starting from the assumption of a stable, Gaussian distribution in a returns process, we evolve to a system that displays all the characteristics of empirical market data, notably time-dependent moments, high levels of kurtosis and fat tails. As it turns out, the only additional assumption one needs to…

JonathanDirection Prediction, Forecasting, Volatility, Volatility Modeling, volatility sign prediction forecasting EngleDirection Prediction, Volatility

Although asset returns are essentially unforecastable, the same is not true for asset return signs (i.e. the direction-of-change). As long as expected returns are nonzero, one should expect sign dependence, given the overwhelming evidence of volatility dependence. Even in assets where expected returns are zero, sign dependence may be induced by skewness in the asset returns process. Hence market timing ability is a very real possibility, depending on the relationship between the mean of the asset returns process and its higher moments.

Empirical tests demonstrate that sign dependence is very much present in actual US equity returns, with probabilities of positive returns rising to 65% or higher at various points over the last 20 years. A simple logit regression model captures the essentials of the relationship very successfully

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