Quantocracy’s Daily Wrap for 11/05/2016

Topics: Mathematics, calculus, differential equations, Covariance and correlation matrices. Linear algebra, Financial instruments: options, bonds, swaps, forwards, futures, C++, algorithms, data structures, Monte Carlo simulations. Numerical methods, Probability. Stochastic calculus, Brainteasers The use of quantitative methods and programming skills in all areas of finance, from trading to risk

Election year is shaping up to be a bad year for trend following. October saw the State of Trend Following index post another successive down month. The current drawdown is still within the limits of the max value from the historical back-test run, but the Year-To-Date performance is now well into double-digit territory. It will be interesting to see if this bad patch is correlated with the

CAPM was the first formal asset pricing model. Market beta was its sole factor. With the 1992 publication of their paper, The Cross-Section of Expected Stock Returns, Eugene Fama and Kenneth French introduced a new-and-improved three-factor model, adding size and value to market beta as factors that not only provided premiums, but helped further explain the differences in returns of

Measuring Factor Exposures: Uses and Abuses Ronen Israel and Adrienne Ross (AQR Capital Management) September 19, 2016 A growing number of investors have come to view their portfolios (especially equity portfolios) as a collection of exposures to risk factors. The most prevalent and widely harvested of these risk factors is the market (equity risk premium); but there are also others, such as value

Principal Component Analysis (PCA) is a technique used to reduce the dimensionality of a data set, finding the causes of variability and sorting them by importance. >How? If you have a set of observations (features, measurements, etc.) that can be projected on a plane (X, Y) such as: DataSet representation You can display the previous graph from X* and Y* axes, which remain orthogonal. New axes