Last time we looked at implied volatility, we found a close relationship between historical volatility and implied volatility. This time, we want to look at the relative changes of DAX and VDAX and their relationship.
Tag archives for Trading Strategy
On July 1st, 1988 German DAX was published. It was not only an index of the German stock market: It introduced a new methodology computing a stock market index. The German DAX was the first popular index to include weights according to market capitalization and calculating returns including dividends. Now, after 25 years it is […]
Often you find studies how well a specific fund or trading strategy has performed. You must be aware of the fact that basically all studies based on historical data lie – or at least do not tell the full story. There are two highly underestimated effects: Survivor bias and fat tails. Both effects make poor […]
Many financial contracts come with the right of exercising a right prematurely. Such early exercise rights are a clear advantage for the option holder. But, these rights create optimal stopping problems for the contract parties. Is this really an advantage? In the following, I will show you a little example from my last shopping trip and […]
Model risk is the risk that the market models in investment banking do not properly reflect the reality. This risk is often neglected or simply ignored. But, it is one of the most important risks as we could see in the mispricing of CDO, ABS, MBS etc at the beginning of the financial crisis (early […]
More and more investors insist on guarantees on the investments. Theses investments are often created using options or dynamic strategies like CPPI. Recently, these strategies were made available in secularized form: Leveraged Exchange Traded Funds (LETF) and Exchange Traded Notes (ETN). Also, life insurance instruments often include guarantees on funds like Variable Annuities. In this […]
Before using specialized tools for back-testing I propose that one tries the MS Excel Pivot Table first. The pivot table tool is great for inspection, filtering and analyzing large data sets. In this article, I will present how to create a simple timing-based strategy and how to compute its historical performance.
Sell in May and go away is an old wisdom which is interesting to analyze. And the continuation “Remember to come back in September” completes this wisdom to a real trading strategy. This strategy is quite old. Many sources say that the original saying comes from traders in the City of London and was “Sell in May […]
One of the most popular portfolio protection trading strategies is the Constant Proportion Portfolio Insurance (CPPI). This strategy maximizes the exposure in stock at each rebalancing time while ensuring that the portfolio level never drops under the so-called floor. Modeling Financial Transaction Tax The currently proposed financial transaction tax is nothing else than a proportional […]
In the previous post, we saw how to backtest a quantitative trading strategy. The result was, that we suspected that we should be able to find better constants for the MACD trading signal strategy. Now, we will use Matlab and Theta Suite in order to create an efficient optimization. Furthermore, we create a simple visualization […]
Many popular quantitative trading strategies are public for quite a while. Now, if you like to utilize such a strategy with real money, you must make sure that your strategy performs well. For simple strategies, MS Excel is perfect for this task. But, since we would like to use an optimization and a specific visualization […]
Computer Aided Finance - Excel, Matlab, Theta Suite etc. 