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QUANT TRADING es un portal dedicado a la educación en Finanzas Cuantitativas. Cursos online de trading y derivados

25/02/2025

During the 1990s Morgan Stanley had spectacular returns. Nobody outside the bank knew it, but for a long time Peter Muller, a proprietary trader that used math and computers to trade was Morgan's supersecret weapon. He and his team called PDT, for Process Driven Trading, made big contributions to the company’s earnings each year, which hidden in the firm's income statement under "principal transactions.

The first hire by Müller was Kim Elsesser, a programmer with a master’s degree in operations research from MIT. Together, they built the operation from scratch. They wrote trading models in computer code and hooked up their Unix workstation to Morgan’s mainframe infrastructure, which was plugged into major exchanges around the world. They started trading in the United States, then added Japan, followed by London and Paris.

After a few years, their models did grow so big and successful that they called the robot MIDAS. Midas was a King who is remembered in Greek mythology for his ability to turn everything he touched into pure gold.

Do you know other successful trading models like this?

18/02/2025

This is Edward Thorp, a math professor who received his PhD in mathematics from the University of California, Los Angeles in 1958. He worked at Massachusetts Institute of Technology from 1959 to 1961, at New Mexico State University from 1961 to 1965 and the University of California, Irvine from 1965 to 1982. Meanwhile he cracked the code to win at Blackjack and also the financial markets:

♠️♦️♣️ In 1962 he wrote the book “Beat the dealer” where he showed how to win at Blackjack using game theory and the Kelly criterion.

💰💰💰 From 1969 to 1989 he ran his hedge-fund Pricenton/Newport Partners making a significant fortune while exploiting pricing anomalies in securities markets, particularly in those involving options.

➕ ➖ ➗ He got a similar result to the famous Black-Scholes equation and used it to trade in warrants. Moreover, he was aware of the formula’s limitations and derived his own methods for delta hedging those instruments in the presence of features like “jumps”.

😱😱 😱In the 1990s, Thorp was an early skeptic of Bernie Madoff's supposedly stellar investing returns which were proved to be fraudulent in 2008.

Legend 🚀🚀🚀

28/01/2025

What’s your favorite sneakers brand? Is it Nike? Adidas? Sketchers? In this short video you will see which stock has performed better. For which one would you bet?

To create a chart like this is quite easy using python code:

STEP 1:
Download the required libraries
import numpy as np
import pandas as pd
import datetime
import yfinance as yf
import plotly.express as px
import plotly.graph_objects as go
import plotly.io as pio

STEP 2:
Download the data
tickers_list = ['NKE','SKX', 'ADDYY']

multiple_prices = yf.download(tickers_list,period='5y')['Close']

for elem in tickers_list:
multiple_prices['Return '+ elem] = multiple_prices[elem]/multiple_prices[elem].shift(1) - 1
multiple_prices['Return '+ elem].iloc[0] = 0

……

STEP 3:
Process and organize the data…

Want to learn more? We left a link in the comments with the entire python code. Enjoy!

21/01/2025

Quantitative traders and investors in the fixed income space frequently use a technique known as Principal component analysis (PCA). It is a multivariate statistical technique generally used to reduce the dimensionality of a data set. This technique can also be seen as a method to transform correlated variables into uncorrelated ones. PCA makes use of the variance and covariance matrix of the data set. If the set is composed of p variables, then we would need p components to explain the total variance of the system. However, it is possible to use k components (with k

14/01/2025

In 1994 John Meriwether, a former star bond trader at Salomon Brothers, launched a massive hedge fund known as Long-Term Capital Management. LTCM was manned by an all-star staff of quants from Salomon as well as future Nobel Prize winners Myron Scholes and Robert Merton. On February 24 of that year, the fund started trading with $1 billion in investor capital.

LTCM specialized in relative-value trades, looking for relationships between securities that were out of whack. One of LTCM’s favorite bets was to purchase old “off the run” Treasuries - bonds, that had been issued previously but had been supplanted by a fresh batch – while selling short new “on the run bonds”. They made these bets with high leverage. It is said that at some point during 1998, its leverage ratio was 100 to 1 or more. LTCM ‘s assets evaporated into thin air and the fund was shot down.

Never trust your quant models blindly, especially if you are extremely leveraged. It doesn’t matter how smart you are, you will probably end up been blown up.

29/11/2024

Sometimes it is difficult to differentiate investing vs trading. Usually, investing refers to a process where you buy assets that produce some kind of income, like bonds that pay interest, equities that pay dividends or a building that generates rent. Even if those assets don’t distribute income, they might appreciate in the future because it’s a growing business or because people think they could become scarce. In investing, you hold your assets for long periods of time, maybe a few years or decades, and if things go well with the economy, companies will repay their debt or will distribute dividends, and investors will earn some returns.

When investors start to buy and sell those assets more frequently people start to say they are investing tactically. There is even a term known as tactical asset allocation, to describe that the portfolio has some short-term adjustments that intend to generate extraordinary returns. That approach takes us closer to trading. There you don’t necessarily want to hold a portfolio of assets, but you would like to buy something that you will later sell and hope to make a profit. These transactions take place usually in the short term. For instance, day traders buy and sell stuff during the same day, high-frequency traders do it in seconds or milliseconds, and swing trader might do in for some days, weeks or months.

Are you a trader or an investor?

22/11/2024

In 2008, funds run by Universa Investments gained as much as 150%. Universa is an investment management firm that specializes in risk mitigation. The company was founded in in 2007 by Mark Spitznagel and has Nassim Taleb as its Scientific Advisor. Risk mitigation strategies focused on buying out of the money options that will benefit from high volatility events that are not priced by the market.

In 2008, this happened to be the Great Financial Crisis that led to sharp declines in equity indexes. Something similar happened in 2020 with the COVID pandemic.

What events do you think are not priced in that could lead to huge financial gains using out of the money options?

20/11/2024

Stock prices have a very strong relationship with earnings. When markets are very efficient, prices tend to anticipate earnings growth. In the chart below you can see the evolution of the net income for Nvidia and its market price. It is not difficult to make a chart like this, using information from the SEC. You can use an API known as EDGAR and download the required information. In the comments we share a link where we show how to do that.

On November 20th, 2024, after market's close, Nvidia will report its earnings for Q3.

Do you have any expectations on this?

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