Category: Markets

TIPS, Gold and their divergence. Is it possible to make money?

Introduction on TIPS and Gold as inflation hedge Generally, an assets is considered t o be an “inflation hedge” if either its purchasing power is maintained over the long run or its nominal returns closely track realized inflation over shorter horizons. Gold and TIPS fall into this category and are thus correlated given that they […]

Dislocations Between Historical and Implied Volatility as an Indicators of Volatility Trades

Differences between historical realized volatility and option implied volatility has for long been known as a potential indicator for volatility mispricing. To our knowledge, the first well-known academic study on the topic was conducted by Goyal and Saretto in 2009 and published as the paper ‘Cross-section of Option Returns and Volatility’. We will first start […]

Market Recap 15/04/18

US Over the course of last week, the most important data concerning the United States came out on Friday 14th, when the University of Michigan’s Consumer Sentiment was released. The Consumer Sentiment was 97.8, below the consensus 100.5 and the previous 101.4. This drop seems to due to concerns about the potential impact of President […]

Can We Get Rid of LIBOR?

In the current increasing interest rate environment, the debate about the controversial but nevertheless important benchmark has sparked off again. This is why, we thought it relevant to provide in the following article a refresher on the history and functioning of the London Interbank Offered Rate, as well as examine the possibility of the newly […]

Highly Leveraged Corporate America: All Chickens Come Home to Roost

Introduction The 2008 Global Financial Crisis (GFC) and subsequent Great Recession pushed the US Federal Reserve to deploy two main tools of monetary interventionism: 1) Quantitative Easing (QE) 2) Reduction of the federal funds rate to unprecedented historical lows The Federal Reserve began purchasing both sovereign and corporate bonds in mass amounts as part of […]

Market Recap 08/04/18

US The US equity market has witnessed a lot of volatility during last week. The trade war with China has weighed on all the three major indices: S&P 500 lost 1.38%, Nasdaq and Dow Jones scored -2.10% and -0.71% respectively. On Monday, the slide of some big Tech firms led the Nasdaq to lead losses. […]

All Cold on the Western Front: Trading the Oil Distillates Market in the Age of Climate Change

Introduction In the midst of a particularly cold North American winter induced by an unexpected southwards movement of the polar vertex in late December 2017, New York Harbor Heating Oil surged nearly 15% from its December low through the end of January. This important petroleum middle distillate often used for heating in the Northeast states, […]

Psychological Biases – How many errors do you commit when investing?

Introduction To maximise our profit when investing in financial instruments we try to rely on analysis of the underlying values, macroeconomic trends and possibly other quantitative methods. However, as much as we try to optimise our returns, we often fail to do so, as we fall prey to our own cognitive and emotional biases. Cognitive […]

Market Recap 11/03/18

US Continuing a monthly streak of surprises, after gapping down -0.66% immediately after Gary Cohn’s resignation as economic advisor of the current US administration, the S&P recovered, increasing 3.25% weekly. In particular all the major indexes rallied (Dow +1,77%, S&P +1,74%, Nasdaq +1,93%) on Friday as non-farm payrolls were 313k (vs 210k expected) and wage […]

Greek Banks are Back (in THE Game)

Macro Environment 2018 is bound to be the point of inflection for the Greek economy. The Bank of Greece reports that GDP will grow 2.5% over the next two years, while the European Commission expects a 1.6% growth in 2017 – the economy’s best performance in a decade. Greece’s 10-year bond yield fell below 4% […]

Siemens AG: German Jumping

The Theory Behind the Implied Vol Jump The classical Black-Scholes model for option pricing assumes that stock prices follow a Geometric Brownian Motion (GBM) with constant drift and, more relevant for the scope of this article, constant volatility (σ). Analytically: where r is the risk-free rate, q is dividend yield and W(t) is a Standard […]

Market Recap 04/03/18

US This week, the main events were the inaugural testimony by new Federal Reserve chair Jay Powell to the House Financial Services and Senate Banking Committees on Tuesday and Thursday, respectively, and the announcement that President Trump is planning to impose tariffs on steel (10%) and aluminium (25%) imports. Mr. Powell told lawmakers on Tuesday […]

The 79th element: Gold

History What made gold a unique asset is its shininess, its malleability and the property of endurable integrity over time. Thanks to these characteristics, it has been widely used in the history of mankind for two core aims: To celebrate the human power and wealth thanks to its magnificence, To support the exchange of goods […]

What’s wrong McFly? Chicken? Back to the Bitcoin Futures

Introduction The purpose of this article is to analyse different futures markets on cryptocurrencies and try to find justifications for excessive premia and discrepancies in prices. Firstly, we are going to present a general overview on cryptocurrencies and futures, then a short analysis of premia and finally we’ll look at the discrepancies amongst different exchanges […]

Market Recap 25/02/18

US This week, the main event was the release on Wednesday of the minutes of the Fed’s January policy meeting. These confirmed the growing sense of confidence among policymakers over the outlook for the US economy and inflation giving further credit to the hypothesis that the FED will raise the rates sooner and at a […]

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