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Asset Pricing using Extreme Liquidity with Python (Part-2)

POST OUTLINE * Part-1 Recap * Part-1 Error Corrections * Part-2 Implementation Details, Deviations, Goals * Prepare Data * Setup PYMC3 Generalized Linear Models (GLM) * Evaluate and Interprate Models * Conclusions * References part-1 recap In part 1 We discussed the theorized underpinnings of Ying Wu of Stevens Institute of Technology - School's asset pricing model. Theory links the catalyst of systemic risk events to the funding difficulties of major financial intermediaries. Thus c

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Backtesting the Implied Volatility Long/Short Strategy (12/06/16)

Post Outline * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) Strategy Summary This is a stylized implementation of the strategy described in the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their SKEW factor predicts individual equity returns up to 6 months! ABSTRACT Stocks exhi

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Asset Pricing using Extreme Liquidity Risk with Python (Part-1)

Post Outline * Introduction * Get Data * Calculate Cross-Sectional Extreme Liquidity Risk * Quick and Dirty Observations * Next Steps * References iNTRODUCTION One of the primary goals of quantitative investing is effectively managing tail risk. Failure to do so can result in crushing drawdowns or a total blowup of your fund/portfolio. Commonly known tools for estimating tail risk, e.g. Value-at-Risk, often underestimate the likelihood and magnitude of risk-off events. Furthermore, tai

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Backtesting the Implied Volatility Long/Short Strategy (11/16/16)

Post Outline * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) Strategy Summary This is a stylized implementation of the strategy described in the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their SKEW factor predicts individual equity returns up to 6 months! ABSTRACT Stocks exhi

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Time Series Analysis (TSA) in Python - Linear Models to GARCH

If you’re interested in automating your strategy or process using AWS Cloud click here. Post Outline * Motivation * The Basics * Stationarity * Serial Correlation (Autocorrelation) * Why do we care about Serial Correlation? * White Noise and Random Walks * Linear Models * Log-Linear Models * Autoregressive Models - AR(p) * Moving Average Models - MA(q) * Autoregressive Moving Average Models - ARMA(p, q) * Autoregressive Integrated Moving Average Models -

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Does Factor Rank Matter for the Implied Volatility Skew Strategy?

Post Outline * Strategy Summary * Results * Conclusions/Analysis Strategy Summary First, if you're unfamiliar with the Implied Volatility Skew Strategy you can find a recent deep dive into the strategy and its performance here. In this short post, I look at the effect of using only the top N ranked ETFs from each Long/Short portfolio. In this case, N is equal to 3. This is an arbitrary selection and this study could be done with the top 1, 2, 4, etc. This differs from the original strate

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Backtesting the Implied Volatility Long/Short Strategy (10/18/16)

Post Outline * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) Strategy Summary This is a stylized implementation of the strategy described in the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their SKEW factor predicts individual equity returns up to 6 months! ABSTRACT Stocks exhi

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Backtesting the Implied Volatility Strategy - A Deeper Dive (10/03/16)

Post Outline * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) * Deep Dive into the Weekly Strategy using Quantopian's Pyfolio * Strategy Concerns Strategy Summary This is a stylized implementation of the strategy described in the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their

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Backtesting the Implied Volatility Long/Short Strategy (9/27/16)

Post Outline * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) Strategy Summary This is a stylized implementation of the strategy described in the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their SKEW factor predicts individual equity returns up to 6 months! ABSTRACT Stocks exhi

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Backtesting the Implied Volatility Long/Short Strategy (9/20/16)

Post Outline * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) Strategy Summary This is a stylized implementation of the strategy described in the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their SKEW factor predicts individual equity returns up to 6 months! ABSTRACT Stocks exhi

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Backtesting the Implied Volatility Long/Short Strategy (9/14/16)

Post Outline * Strategy Restart * Strategy Summary * References * 4-Week Holding Period Strategy Update * 1-Week Holding Period Strategy Updated (Target Leverage=2) Strategy Restart After a ~2 month pause, the implied volatility long/short strategy has returned! If you were previously unaware this strategy relied on aggregating free options data via the now defunct Yahoo Finance Options API. After some time I was able to track down another free, reliable, source for options data via Bar

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Aggregating Free Options Data with Python

Post Outline * Motivation * Code Requirements * Creating our Scraper Class * Aggregating the Data * Github Gist Code * Disclaimers Motivation This year I implemented a simulated trading strategy based on the research paper titled "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns" by Yuhang Xing, Xiaoyan Zhang and Rui Zhao. The authors show that their SKEW factor has predictive power for equity returns for up to 6 months. Because historical options data

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