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Quantitative Finance

New submissions

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New submissions for Thu, 21 Sep 17

[1]  arXiv:1709.06641 [pdf, ps, other]
Title: Dead Alphas as Risk Factors
Comments: 9 pages; to appear as an Invited Editorial in Journal of Asset Management
Subjects: Portfolio Management (q-fin.PM); Risk Management (q-fin.RM)

We give an explicit algorithm and source code for extracting equity risk factors from dead (a.k.a. "flatlined" or "hockey-stick") alphas and using them to improve performance characteristics of good (tradable) alphas. In a nutshell, we use dead alphas to extract directions in the space of stock returns along which there is no money to be made (and/or those bets are too volatile). In practice the number of dead alphas can be large compared with the number of underlying stocks and care is required in identifying the aforesaid directions.

[2]  arXiv:1709.06759 [pdf, ps, other]
Title: Market Dynamics. On A Muse Of Cash Flow And Liquidity Deficit
Subjects: Trading and Market Microstructure (q-fin.TR); Computational Finance (q-fin.CP)

The first attempt to obtain market directional information from non--stationary solution of the dynamic equation[1] "future price tend to the value maximizing the number of shares traded per unit time" is presented. We demonstrate that price impact concept is poorly applicable to market dynamics and execution flow $I=dV/dt$ operator with an "impact from the future" term, providing information about not yet executed trades to be considered instead. An impact from the future on $I$ can be directly estimated from already executed trades, after that directional information on price can be obtained from experimentally observed fact that $I$ and $p$ operators to have the same eigenfunctions (exact result in dynamic impact approximation $p=p(I)$). The condition of "no information about the future" is found and directional predictions quality is discussed. This work make a substantial progress toward the solution of ultimate market dynamics problem: an evidence of existence (or a proof of non--existence) of an automated trading machine, consistently making positive P&L trading on a free market as an autonomous agent, i.e. to decide whether market dynamics equation exist. Software with a reference implementation of the theory is provided.

Replacements for Thu, 21 Sep 17

[3]  arXiv:1709.04620 (replaced) [pdf, ps, other]
Title: Random matrix approach for primal-dual portfolio optimization problems
Comments: 24 pages, 4 figures
Subjects: Portfolio Management (q-fin.PM); Disordered Systems and Neural Networks (cond-mat.dis-nn); Computational Engineering, Finance, and Science (cs.CE); Learning (cs.LG); Optimization and Control (math.OC)
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