Andrew Pole – Statistical Arbitrage
While statistical arbitrage has confronted some robust occasions?as markets skilled dramatic adjustments in dynamics starting in 2000?new developments in algorithmic buying and selling have allowed it to rise from the ashes of that fireside. Based on the outcomes of writer Andrew Pole?s personal analysis and expertise operating a statistical arbitrage hedge fund for eight years?in partnership with a gaggle whose personal historical past stretches again to the daybreak of what was first referred to as pairs buying and selling?this distinctive information supplies detailed insights into the nuances of a confirmed funding technique. Filled with in-depth insights and professional recommendation, Statistical Arbitrage incorporates complete evaluation that can attraction to each buyers on the lookout for an summary of this self-discipline, in addition to quants on the lookout for vital insights into modeling, threat administration, and implementation of the technique.
Chapter 1. Monte Carlo or Bust.
Whither? And Allusions.
Chapter 2. Statistical Arbitrage.
Spread Margins for Trade Rules.
Refining Pair Selection.
Correlation Search within the Twenty-First Century.
Portfolio Configuration and Risk Control.
Exposure to Market Factors.
Risk Control Using Event Correlations.
Dynamics and Calibration.
Evolutionary Operation: Single Parameter Illustration.
Chapter 3. Structural Models.
Formal Forecast Functions.
Exponentially Weighted Moving Average.
Classical Time Series Models.
Autoregression and Cointegration.
Dynamic Linear Model.
Pattern Finding Techniques.
A Factor Model.
Doubling: A Deeper Perspective.
Factor Analysis Primer.
Prediction Model for Defactored Returns.
Chapter 4. Law of Reversion.
Model and Result.
The 75 % Rule.
Proof of the 75 % Rule.
Analytic Proof of the 75 % Rule.
First-Order Serial Correlation.
Applicability of the Result.
Application to U.S. Bond Futures.
Appendix 4.1: Looking Several Days Ahead.
Chapter 5. Gauss is Not the God of Reversion.
Camels and Dromedaries.
Dry River Flow.
Some Bells Clang.
Chapter 6. Interstock Volatility.
Theory versus Practice.
Finish the Theory.
Finish the Examples.
Primer on Measuring Spread Volatility.
Chapter 7. Quantifying Reversion Opportunities.
Reversion in a Stationary Random Process.
Frequency of Reversionary Moves.
Amount of Reversion.
Movements from Quantiles Other Than the Median.
Nonstationary Processes: Inhomogeneous Variance.
Sequentially Structured Variances.
Sequentially Unstructured Variances.
Appendix 7.1: Details of the Lognormal Case in Example.
Chapter 8. Nobel Difficulties.
Will Narrowing Spreads Guarantee Profits?
Rise of a New Risk Factor.
The Story of Regulation Fair Disclosure (FD).
Correlation During Loss Episodes.
Chapter 9. Trinity Troubles.
Advocating the Devil.
Stat. Arb. Arbed Away.
Volatility Is the Key.
Interest Rates and Volatility.
Truth in Fiction.
A Litany of Bad Behavior.
A Perspective on 2003.
Realities of Structural Change.
Chapter 10. Arise Black Boxes.
Modeling Expected Transaction Volume and Market Impact.
More Black Boxes.
Chapter 11. Statistical Arbitrage Rising.
Trend Change Identification.
Using the Cuscore to Identify a Catastrophe.
Is It Over?
Catastrophe Theoretic Interpretation.
Implications for Risk Management.
Appendix 11.1: Understanding the Cuscore.
Andrew Pole is a Managing Director at TIG Advisors, LLC, a registered funding advisor in New York. He makes a speciality of quantitative buying and selling methods and threat administration. This guide is the results of his personal analysis and expertise operating a statistical arbitrage hedge fund for eight years. Pole can also be the coauthor of Applied Bayesian Forecasting and Time Series Analysis.
“Over time, anything that creates an edge for a particular group of bettors—including the most astute observers of horse flesh—gets factored into the odds and becomes unreliable as a system. That’s the classic argument of random walk theorists, and the equally classic response is that there’s a lot of money to be made before that factoring is complete. This book is a contribution to that never-ending debate.” (Hedgeworld.com)