The trading algo that I was working on for the last one week has finally shown some alpha..The tweak was a simple tweak..Need to make it more intelligent..but sometimes I guess simple things work like charm as compared to complicated stuff! In any case will try to engineer it a bit and see whether I can extract more alpha!
This book traces the key events in the US political and economy history that have supposedly led to the current crisis. Books such as these attempt to try to make a good narrative of the events around us. As they say , connecting dots backwards is easy ..and so this book in that sense does a better job.
Usually crisis is associated with a specific asset class. Junk bonds, CMO’s, Real estate, etc. However the current financial crisis is a different one . It is a credit crisis which permeates across all asset classes. It is like poisoning air and there is no respite for any living being in the environment. Credit crisis permeates across all assets as it is the lifeblood of finance and that makes this crisis VERY dangerous. The asset classes which are going to get impacted are not just the dodgy mortgages but Commercial Mortgages, Credit Card debts, High yield bonds, Leverage Loans, Complex bond structures, all in total, according to the author’s estimate is ONE TRILLION DOLLARS!!! That’s equivalent to the GDP of India!! scary to think of it.
LTCM was just 100 billion in positions and 10 million assets at risk. This time , the numbers are scary and bailout means unbelievable sum of money.
This book traces the key events in the US political and economy history that have supposedly led to the current crisis. Books such as these attempt to try to make a good narrative of the events around us. As they say , connecting dots backwards is easy ..and so this book in that sense does a better job.
Usually crisis is associated with a specific asset class. Junk bonds, CMO’s, Real estate, etc. However the current financial crisis is a different one . It is a credit crisis which permeates across all asset classes. It is like poisoning air and there is no respite for any living being in the environment. Credit crisis permeates across all assets as it is the lifeblood of finance and that makes this crisis VERY dangerous. The asset classes which are going to get impacted are not just the dodgy mortgages but Commercial Mortgages, Credit Card debts, High yield bonds, Leverage Loans, Complex bond structures, all in total, according to the author’s estimate is ONE TRILLION DOLLARS!!! That’s equivalent to the GDP of India!! scary to think of it.
LTCM was just 100 billion in positions and 10 million assets at risk. This time , the numbers are scary and bailout means unbelievable sum of money.
Last 5 day chart of VIX summarizes the crisis on wallstreet.
It is currently at 73!!
In one year 55% GDP of US is wiped out by the market !
AND Dow keeps falling like there is no tomorrow
600 point drop
Where are we heading? !!!
Via Steven Shreve:
To prevent a recurrence of financial crises, some call for a return to a simpler time, before derivative securities and the quants who analyze them–a time when investors bought stocks and bonds and little else.
Such complaints miss the point. When a bridge collapses, no one demands the abolition of civil engineering. One first determines if faulty engineering or shoddy construction caused the collapse. If engineering is to blame, the solution is better–not less–engineering. Furthermore, it would be preposterous to replace the bridge with a slower, less efficient ferry rather than to rebuild the bridge and overcome the obstacle.
Dow says : Don’t fool me by Rate cut !!
The opera continues :)
The Fed lowered its fed funds rate by half of a percentage point to 1.5%. The central bank’s statement said the move was necessary because of the worsening crisis in global financial markets. Link : Rate Cut
We are back to 2002 levels of Fed Fund Rate.This is going to be a prolonged period of recovery till 2009 /2010/2011/god knows!!
I shudder to think that it is a vice-presidential candidate speaking!. God save america!
If you have a portfolio of 1000 stocks, there are 5 key decisions that one needs to take:
Buy to Open
Sell to Open
Buy to Close
Sell to Close
Do Nothing
In a quant based strategy like the one I have been working for the past few months , the signals help me get on to the position. However, there is a catch. As you get on to the position based on external asset price movements, you have to look at something relating to the portfolio, which is RISK. Risk based quant investing is something that is of key importance to stat arb based strategies.
House approves the $700 billion package!!
Link : Approved
Link : House again
Will the bail out package be approved this time ? I bet that it would be passed this time in the House..Why ? May be trying to be a bit optimistic i guess..It will be fun to track VIX in this week.Today there was a record volume of puts traded .
Whats in store for this week ? well, it is drama time NOW!! :)
They say this is the worst year for anybody to graduate out of a program…I say, it is fun to be in such uncertain periods and watch closely the markets..This is best time I guess to just be a spectator and watch the drama as it unfolds :)
Looking at the chart of 1 day DOW movement, it would be hard to say that we are in one of worst financial crisis. The significant feature of this crisis, when people write about it , would be that of a volatility based crisis where vol is created by government regulations, panic etc..
~500 point increase in DOW on a single day…and we are in a financial crisis!!!! Who says markets are predictable ?
A list of hedge Funds which blew up in the subprime crisis, the big ones..Small ones are too many to fit a list I guess.
Link: http://hf-implode.com/
Ever heard of the term Norm Entrepreneurship !! Business that fills the gap of social norms!
Here is an example …
Via Tyler Cowen :
One of the hottest bars in the Chinese city of Nanjing sports only a sofa, a few tables, and tissue paper - a lot of tissue paper. The AFP news service reports that the city’s first “cry bar,” where customers can sit and cry for $6 per hour, is growing in popularity. Owner Luo Jun says he opened the bar when clients of his last business said they often wanted to cry but didn’t know when or where it would be appropriate to do so.
Via Suneet :)
Link : Short Sellers Get Squashed
Shorting, the basic stuff that one takes for granted in various models , when banned , make the models useless.
Shorting which is underlying assumption of BlackScholes, Several math models, Long-Short Stat arb strategies !! has been banned on 799 US- Stocks. This is the time to throw all the models aside and trend follow!!
In a sour mood!!
“Education is the path from cocky ignorance to miserable uncertainty”
Link : http://www.thebigview.com/pastlife/index.html
:)
Apparently, this is how my past life was :
I don’t know how you feel about it, but you were male in your last earthly incarnation.You were born somewhere in the territory of modern North Japan around the year 1025. Your profession was that of a monk (nun), bee-keeper or lone gunman.
Your brief psychological profile in your past life:
Such people are always involved with all new. You have always loved changes, especially in art, music, cooking.
Lehman is to be liquidated, Bank of Am is rumoured to buy Merill, ING is being lent funds by Russia…All these big developments over a weekend. How is the market going to react tomorrow ? Will it be a black monday ? God knows!!!
In the study of any subject , one starts with understanding basic principles / Laws. If it Physics, may be one starts off with basic laws governing universe, If it is Math, one starts with axioms , lemmas , theorems etc.
What about Finance and Economics, which are more of a social science than hard sciences ? Well, the first one is obviously, Demand and Supply Law..and then….most economists and folks from finance BELIEVE in “Law of One Price”, which says that identical goods must be priced the same. This is the law on which the mighty edifice of M-M capital structure is built, the BS Option pricing formula and Arbitrage pricing theory is built. However in the recent times, there have been a lot of anomalies to this law, a few examples are :
One can predict the course of a comet more easily than one can predict the course of Citigroup’s stock. The attractiveness of course, is that you can make more successfully predicting a stock than you can a comet.
- Jim Simons
**“For an interest to be rewarding, one must pay in discipline and dedication, especially though the difficult or boring stages which are inevitably encountered”
**
- Mira Komarovsky
Any freshman will know that integral of (1/x) between 0 and 1 doesn’t converge. But integral of (1/x^2) between 0 and 1 does converge.But WHY ? Questions often , even as simple as this , are not given time and the outcome is - we spend most of our lives on answering somebody else’s questions rather than posing questions.
A particularly nice way of looking at this convergence cropped up when Anupam gave this insight, while discussing Fourier Transforms. This is a popular technique , a 10,000 ft view of this technique is this : It reduces the tails so that you can calculate the integral easily.That is exactly the reason why (1/x^2) converges …we are reducing the tail area! ..Wow!! never ever thought about it in this way!!
If you train hard, you’ll not only be hard, you’ll be hard to beat.
- Herschel Walker
Via Googleblog:
It was a pretty tiring day with teaching and research all going in one day…Added to that, the new class that I am teaching are freshmen …. Keeping their attention for 100 minutes on “calculus " is a challenge and obviously as in any class, the class comprises characters of all types !!! Inspite of teaching for over an year, this new class is a big challenge…Perhaps, that’s what makes people stick to acads in the sense that every year ,every batch is a new animal.!!!
C++ is a language that requires sustained effort of programming for a years , say, the gurus of the language. May be that is the case..Personally , the language is fascinating in terms of design. Just by looking at why some things are done the way they are in C++, the learning can be immense.
For example - Postfix and Prefix operators – i++ and ++i . How do you think such a thing is implemented? As you know that a function is overloaded based on the input parameter types. Did you realize that there is no input parameter , at least, on the surface of it ? Then how does it work ? How does compiler know the difference between ++() prefix and postfix..Well, here is something that one can understand and appreciate how things are done. In the case of postfix, compiler silently passes int 0 as an input and in the case of prefix, no parameter is passed.
“Hard work has made it easy. That is my secret. That is why I win.” - Nadia Comaneci
A lucid explanation of why VIX is important in the context of Asset Allocation
via : Seeking Alpha
Do you think Java is a type-safe language ? Read Upenn’s professor’s take on it
“The real problem of leisure time is how to keep others from using yours.” - Arthur Lacey
It is 4:00 am on saturday morning and it is raining outside. Wonderful setting to write something. So, here I go.
This book was referred by Prof Stefanica, the director of Baruch MFE program . I stacked this book in my inventory under the assumption that I will read it at some point of time soon. Few backs , I had to go to Boston to visit Anoop, my childhood friend. I love long journey for it gives me a chance to be away from comp and just read, reflect and think about various things….I managed to go over this book in the journey. Let me attempt to summarize this book :
One reason to track Put/Call ratio is to judge the market bearishness or bullishness. However, if one juxtaposes VIX indicators along with P/C ratio, one gets a better sense of trend too. Here is more gyan on it.
CODE LIBRARY
Have just started organizing the code that I have written over the last 12 months. Sourceforge is the best thing to use for such purposes. Here is the link to 100 odd classes that I written for pricing derivatives. Need to comment Finite Difference code and upload it . May be I will do it over the labor day weekend.
Link to my QuantFin Library : Source Forge:Quantitative Finance C++ Library
An option writer needs to have this plastered in his room :)
Via a comment on some blog :
“Trading isn’t about profit and loss. It’s about self-actualization. There are many ways to fulfill your potential. We happen to choose trading. And that’s not a small thing. Success and failure in this arena is beyond our control, and what’s more, it can be objectively measured, and I think that is why trading failures cause so much cognitive dissonance. We suffer so much when we lose not because we can’t handle being wrong, but because every defeat moves us one step farther away from self-actualization.
Determining whether a variable is deterministic or stochastic has been my biggest problem till date and sadly, every time I have failed in classifying . The problem arises when the variable morphs from deterministic to stochastic and back to deterministic and I have no clue how to go about it.
I think the best approach that I am following now is : Why give a damn :) Let it be any variable .as long as you make it an independent variable , life goes on :)
Thanks TP for sending me a link about this company.
Went through The Need for a New Analytic Architecture Sounds very interesting!! and exciting!!
I have always been fascinated by ants. Infact I took some time out and via kathalaya told a story to 4th class kids about ants..Here is an interesting post on swarm intelligence in NYT
How to spot the spike before the earnings announcement. Vixandmore has a detailed article
Easy in the short run, painfully DISASTROUS in the long run
In April , India announced India VIX. Obviously I have not kept track of this event for various reasons. However today when I browsed through the NSE site, I found that NSE has outlined the methodology for India VIX. It is exactly same as CBOE. There was one thing which was very disheartening, the document which outlies the procedure is a Ctrl C+ Ctrl V of the CBOE documents with author putting no effort whatsoever in taking time out in at least typing the formulae in Latex. He/She seemed to have pasted the formula as a gif/jpeg and it makes the document so ugly. It hardly takes a few minutes to write the formula in Latex and prepare a professional document.
Via Robert H. Frank - MIT Press:
“In effect, I wish to propose two different answers to the question “Does money buy happiness?” Considerable evidence suggests that if we use an increase in our incomes, as many of us do, simply to buy bigger houses and more expensive cars, then we do not end up any happier than before. But if we use an increase in our incomes to buy more of certain inconspicuous goods–such as freedom from a long commute or a stressful job–then the evidence paints a very different picture. The less we spend on conspicuous consumption goods, the better we can afford to alleviate congestion; and the more time we can devote to family and friends, to exercise, sleep, travel, and other restorative activities. On the best available evidence, reallocating our time and money in these and similar ways would result in healthier, longer– and happier–lives. "
