QF5205 1011sem2

QF5205 Topics in Quantitative Finance
For Semester 2, 2010/11
Lecturer in charge:
LI Haksun
Timetable:
Every Tuesday, 19:00-22:00 hrs, LT22
Descriptive module Name:

Quantitative Trading
Course Description:
This course is to introduce students to quantitative trading. Quantitative trading is where
traders design mathematical models to describe and predict market movements. Often
these models are implemented on computer systems for automatic execution. Traders start
with a vague trading idea. Using mathematics, they turn the intuition into a quantitative
model for analysis, back testing and refinement. When this quantitative model proves to be
likely profitable by passing the rigorous statistical tests, the traders implement them on
computer systems for execution. Quantitative trading is the process where ideas are turned
into mathematical models and then coded into computer programs for systematic trading. It
is a science where mathematics and computer sciences meet. In this course, we will
introduce the basic mathematics and IT aspects of this emerging field. We will also survey
the popular literature.
After the students satisfactorily complete this course, they will have the basic math and IT
skills in quantitative trading. By doing the class projects, they gain hands-on experience.
The students are therefore better prepared for a front office role in hedge funds or banks.
Learning Goals and Objectives:

Assessment
Learning Goals Learning Objectives
Methods
Knowledge • Understand the fundamentals of quantitative • Term-Project
Acquisition trading Assignment
• Understand some trading strategies published • Oral
in academic and industrial journals Presentation
• Gain hands-on experience to design and
implement their own trading strategies
Critical Thinking • Develop critical thinking skills to form and • In-Class
Skills evaluate trading ideas, synthesize diverse Discussion
strategies, and assess different
implementations.
Ethical Reasoning • Develop ethical reasoning skills to understand • Mini-debates

Skills ethical issues arisen from different stakeholder
perspectives, identify potential conflicts of
interest, and provide possible resolution.
Teamwork and • Develop competencies needed to function well • Peer
Interpersonal Skills in teams Assessments
Prescribed Materials:
1. An Introduction to High-Frequency Finance. Ramazan GenÃ§ay, Michel Dacorogna,
Ulrich A. Muller, Olivier Pictet, Richard Olsen. Academic Press. 2001.
2. Statistical Analysis of Financial Data in S-PLUS. Rene A. Carmona. Springer. 2004.
3. Algorithmic Trading: Hidden Markov Models on Foreign Exchange Data. Patrik Idvall,
Conny Jonsson. University essay from Linköpings universitet/Matematiska institutionen;
Linköpings universitet/Matematiska institutionen. 2008.
4. When are contrarian profits due to stock market overreaction? Andrew W. Lo and A.
Craig MacKinlay. Review of Financial Studies 3(1990), 175–206.
5. Time Series Technical Analysis via New Fast Estimation Methods: A Preliminary Study in
Mathematical Finance. Michel Fliess. Cédric Join. Published - Presented, IAR-ACD08
(23rd IAR Workshop on Advanced Control and Diagnosis), 2008, Coventry, United
Kingdom.
6. A dynamic analysis of moving average rules. Carl Chiarella, Xue-Zhong He, and Cars
Hommes. Journal of Economic Dynamics and Control, Volume 30, Issues 9-10,
September-October 2006, Pages 1729-1753.
7. Do the technical indicators reward chartists? A study on the stock markets of China,
Hong Kong and Taiwan. Wing-Keung Wong, Jun Du, Terence Tai-Leung Chong. 2005.
8. A comparison of MA and RSI returns with exchange rate intervention. Thomas C. Shik,
Terence Tai-Leung Chong. Applied Economics Letters, Volume 14, Issue 4 - 6 April
2007 , pages 371 - 383.
9. Modeling and Forecasting Stock Return Volatility Using a Random Level Shift Model.
Yang K. Lu, Pierre Perron. 2009. Journal of Empirical Finance, Elsevier, vol. 17(1), pages
138-156.
10. Bayesian Adaptive Trading with a Daily Cycle. Robert Almgren, Julian Lorenz. The
Journal of Trading. Fall 2006, Vol. 1, No. 4: pp. 38-46.
Course Assessments:
Components Marks Individual/Group
In-Class Discussion and Participation 10 Individual
Term Project (Written Report) 60 Group
Oral Presentation 20 Individual/Group
Teamwork and Interpersonal Skills 10 Individual/Group
Total 100
The grade of a student will be based on their performance on

 Presentation – how thorough they understand the trading strategies and how well
they present the materials;
 Demonstration in Week 13 – how well they back test, how well they do the analysis,
how good the improvements they make;
 Implementation of the strategies – how elegantly the program is structured and
coded;
 Written Report – how good the quality is; how well-written the report is; and
 Class participation – how active they participate in discussion about trading ideas
Course Format:
The first 6 weeks consist of lectures presenting the basic of quantitative trading in terms of
strategy design, back testing and IT. This gives setting to the student projects.
From week 7 to week 12, classes are structured into two sessions. The first 1.5 hours is the
instructor lecture of some basic theories in quantitative trading. The latter 1.5 hour is the
student presentations and Q&A session.
We group the students into 6 groups. Each group will pick a selected paper on a particular
trading strategy (ref #3 – 10). The group will read and understand the paper and know how
to implement and improve the trading strategy. From Week 7 onward, each group will take
turn to make an hour presentation on the chosen paper to the class and have half an hour
of Q&A session about the presented paper.
On Week 13, each group will have 0.5-hour to demonstrate the success (or failure) of their
own trading strategies. They will show their implementation, back testing results, what
improvements they make to the papers, and what future work they would do. The students
must also submit a written report of their work.
Course Outline:
Week Topics Readings
1 Overview of quantitative trading – my personal experience
2 Sample strategy walkthrough – a Hidden Markov model
Back testing – how to analyze and improve a trading
3
strategy
Trading system design – how to build a fast and reliable
4
system that talks to the exchanges
Guest speaker – asset management, a hedge fund
5
perspective
6 Data cleaning #1. Chapter 4
7 Basic stylized facts #1. Chapter 5
8 Volatility dynamics #1. Chapters 6 & 7
#1. Chapter 8
9 Volatility modeling
#2. Chapter 7
#1. Chapter 10
10 Correlation
#2. Chapter 6
11 Guest speaker – value investing
Guest speaker – interest rate trading, an investment bank
12
perspective
13 Presentation of trading strategy projects
About Dr Li Haksun
Dr Li obtained a BSc in Mathematics from the University of Chicago in 1997, MS and PhD in
Computer Science and Engineering from the University of Michigan in 2001 and 2004
respectively, and MS Financial Mathematics from the University of Chicago in 2008.
He is a founder and CEO of Numerical Method Inc. Before that he worked with Bloomberg,
L.P., NY, as Senior Software Developer (2004 -2005), Union Bank of Switzerland,
Stamford, CT as Quantitative Analyst (2005 – 2006) and BNP Paribas, New York,
Tokyo, London, Singapore as Quantitative Trader (2006 – 2010).

QF5205 1011sem2

Uploaded by

Copyright:

Available Formats

QF5205 1011sem2

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

QF5205 1011sem2

Uploaded by

Copyright:

Available Formats

QF5205 Topics in Quantitative Finance

For Semester 2, 2010/11

Descriptive module Name:

Learning Goals and Objectives:

Ethical Reasoning • Develop ethical reasoning skills to understand • Mini-debates

The grade of a student will be based on their performance on

You might also like