When you ask successful people for their advice on how to become successful you will often hear that you have to take risks, often huge risks.
In this post we will examine whether this is good advice with a simple multi-agent simulation, so read on!
Continue reading “How to be Successful! The Role of Risk-taking: A Simulation Study”
How lucrative stocks are in the long run is not only dependent on the length of the investment period but even more on the actual date the investment starts and ends!
Return Triangle Plots are a great way to visualize this phenomenon. If you want to learn more about them and how to create them with R read on!
Continue reading “Create Return Triangle Plots with R”
One of my starting points into quantitative finance was Bernie Madoff’s fund. Back then because Bernie was in desperate need of money to keep his Ponzi scheme running there existed several so-called feeder funds.
One of them happened to approach me to offer me a once-in-a-lifetime investment opportunity. Or so it seemed. Now, there is this old saying that when something seems too good to be true it probably is. If you want to learn what Benford’s law is and how to apply it to uncover fraud, read on!
Continue reading “How to Catch a Thief: Unmasking Madoff’s Ponzi Scheme with Benford’s Law”
In the area of options strategy trading, it has always been a dream of mine to have a universal tool that is able to replicate any payoff function statically by combining plain vanilla products like calls, puts, and zerobonds.
Many years ago there was such a tool online but it has long gone since and the domain is inactive. So, based on the old project paper from that website I decided to program it in R and make it available for free here!
Continue reading “Financial Engineering: Static Replication of any Payoff Function”
The Kalman filter is a very powerful algorithm to optimally include uncertain information from a dynamically changing system to come up with the best educated guess about the current state of the system. Applications include (car) navigation and stock forecasting. If you want to understand how a Kalman filter works and build a toy example in R, read on!
Continue reading “Kalman Filter as a Form of Bayesian Updating”
Forecasting the future has always been one of man’s biggest desires and many approaches have been tried over the centuries. In this post we will look at a simple statistical method for time series analysis, called AR for Autoregressive Model. We will use this method to predict future sales data and will rebuild it to get a deeper understanding of how this method works, so read on!
Continue reading “Time Series Analysis: Forecasting Sales Data with Autoregressive (AR) Models”
Our intuition concerning randomness is, strangely enough, quite limited. While we expect it to behave in certain ways (which it doesn’t) it shows some regularities that have unexpected consequences. In a series of seemingly random posts, I will highlight some of those regularities as well as consequences. If you want to learn something about randomness’ strange behaviour and gain some intuition read on!
Continue reading “Learning Statistics: Randomness is a Strange Beast”
R is one of the best choices when it comes to quantitative finance. Here we will show you how to load financial data, plot charts and give you a step-by-step template to backtest trading strategies. So, read on…
Continue reading “Backtest Trading Strategies Like a Real Quant”
Asset returns have certain statistical properties, also called stylized facts. Important ones are:
- Absence of autocorrelation: basically the direction of the return of one day doesn’t tell you anything useful about the direction of the next day.
- Fat tails: returns are not normal, i.e. there are many more extreme events than there would be if returns were normal.
- Volatility clustering: basically financial markets exhibit high-volatility and low-volatility regimes.
- Leverage effect: high-volatility regimes tend to coincide with falling prices and vice versa.
Continue reading “Inverse Statistics – and how to create Gain-Loss Asymmetry plots in R”