Friday, August 23, 2013

MATLAB for Quant Index / ETF / Smart beta funds / Passive investment strategies


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Saturday, August 10, 2013

Class on Index Quant research [A part of VBA/MATLAB for Financial engineering course by]

Quant ETF strategies allows to replicate some of the themes taken by hedge funds or other investors in a system and passive way. To keep things neutral general we take equal long short positions  Linking this to FRM 2 becomes interesting and there is lot of VBA / MATLAB involved in these strategies. Revise [1]: duration for Barbel ladder etc portfolio . VBA comes into play for pulling values, balancing (not selection, selection can be quant and may need R or MATLAB)

Top index providers is: Blackrock, Vanguard, Barcklays, DB

Good Website to learn is:

Pricing CDS is givn in 4, CDS uses cioplula a part of FRM 2 curriculum.

We will look at the following:

1. Buy emerging market with hedging currency (ie buying forwards)
2. Buy currency emerghin market short developed marketss
3. Beta strategies: high beta strong fundamental (return of company with national index or MSCI world?)
4. Currency bias on forward (sell forward)
5. Merton model for equity prices and deciding which is best (nearly same as STD/Price)
6. Short straddle index on index / currency etc
7. Volatility ETF (trading volatility)
8. MC : average, sd, distribution (nearly same as momentum)
9. Baa3 / BBB- minus bonds after adjusting for risk
10. Merrill Lynch Crossover Corporate Bond ETF strategy
11. Mixing beta/momentum/volatility [2]: taking reverse bets from fundamentals
12. CDS methodloghies to create idnexd [4] and municipal bonds [5]

Rebalancing becomes important so that we are correct ton weights.
“some quant strategies have lost effectiveness when they became more widely used [11]”

[10] FRM elitebook

merton dd and reverse play based on fundamentals of the company 


Stochastic itnesr rates

Advanced Indices for Quant index page:
Revision 2
Merton model (predicting quality of equity using merton model)
Cubic Spine Interpolation  for Bond index(to see)
Copula base models / multivariate normal distributions for bonds index? (to see)
A part of the top method: Correlated residuals with Choskley decomposition (simple time series regression)
How does Dealer bank / Prime Brokerage work:
Borrowing assets from asset management and giving it to hedge funds or to any other who wants them for some days or weeks. This is same like they have made index which some people can buy and they will track them for them, but they can borrow them in between. Long for long terms is pension funds or other hedge funds and short term borrowers are hedge funds.

Baa3 / BBB- minus bonds after adjusting for risk
Shirting first bond and longing end bond and using one or the other techniques pined above
Different sector based on which will be more effected and which is booming.
Movement rationale that one which is downgraded with acquisition will rise up in 1 year.

How to model this in MATLAB?
Parallel computing in matlab in case of fast decision making is important while decreasing speed.