Model Risk

A while back, I went to a get-together with Massimo Morini, who wrote a book on model risk specifically. It struck me as a really interesting concept. I’ve been meaning to write a few words on model risk since. Model risk is the risk of a significant difference between the mark-to-model value of an instrument, … Continue reading

Ernie Chan on the pitfalls of backtesting

Nice overview from a practitioner on potential biases when backtesting. Ernie is the author of the decent algorithmic trading  intro called Quantitative Trading, which I recommend for anyone getting their head around this business. He blogs over on blogspot. [Warning: I may be able to afford a coffee if you happen to buy the book through … Continue reading

Does automated trading generate any real profit?

Reposting of an important question from a forum, because I think it’s a pretty important question. Does automated trading generate any real profit? What I’m trying to ask is that if we have two identical country, and then add an automated trading system to one of them. Will that country end up having more wealth than the other … Continue reading

Bad Medicine: regulating high frequency traders won’t address muddling of dark pools

Recently, I read Scott Patterson’s (@pattersonscott) Dark Pools, the somewhat disturbing recent history of high frequency trading, packaged in a superb narrative that is probably the closest to a Bond thriller that the industry will ever get. He eloquently points out the twists and turns that lead to where we are today. Starting with 24 dead … Continue reading

Investment strategy mindmap

Lately I’ve been playing around with various mindmaps to help organize ideas about investing. Mindmaps are a brainchild of Tony Buzan. Here’s an overview of investment strategy. Click on it to go through to the actual mindmap, where you can add or modify the map yourself if you feel you can make a worthwhile change.

Intro to high frequency trading

Have a look at this decent intro to algorithmic trading, just to get a sense of this works. The focus is actually more on high-frequency trading. In particular, listen in for more info on quote stuffing, one of the less attractive aspects of high-frequency trading.

If you believe the efficient markets hypothesis, don’t follow this blog

In order to help you understand how to improve your investment returns, dear reader,  I wanted to rant on how academic economists, supposedly the bastions of rational thinking, independent of commercial bias, the smartest of the smart, created and promoted a completely irrational theory, causing millions of people to not even consider investing for fear … Continue reading