I. Concept
quantify
"Quantification" refers to the use of statistical methods and mathematical models to guide investment, and its essence is the quantitative practice of qualitative investment.
Quantification industry: non-financial industries are interested in quantification, financial engineers, IT personnel in the financial industry, investment positions, financial or engineering college students.
(2) Hedging
"Hedging" refers to managing and reducing the risk of the portfolio system in order to cope with the changes in the financial market and obtain relatively stable returns.
Quantitative hedging is a combination of the concepts of quantification and hedging. In practice, hedge funds often use quantitative investment methods, and they are often used alternately, but quantitative funds are not exactly the same as hedge funds.
(3) Arbitrage
Arbitrage is also called spread trading. Arbitrage refers to buying or selling an electronic trading contract while selling or buying another related contract.
Arbitrage trading refers to trading in the opposite direction in related markets or related electronic contracts by taking advantage of the price difference changes between related markets or related electronic contracts, and making profits in the expectation of price difference changes.
Arbitrage trading modes are mainly divided into four types, namely: stock index futures arbitrage, commodity futures arbitrage, statistics and option arbitrage.
Arbitrage trading can be divided into two types: one is spot arbitrage, that is, arbitrage between futures and spot; Second, arbitrage of spreads between different months, different varieties and different markets in the futures market is called spread trading. According to the different operating objects, spread trading can be divided into three types: intertemporal arbitrage, cross-variety arbitrage and cross-market arbitrage.
Intertemporal arbitrage can be divided into bull spread, bear market arbitrage, butterfly arbitrage and vulture arbitrage according to the different trading positions established by traders in the market.
Second, the procedures and methods of quantitative hedging
1. Quantify the objects of programmed hedging transactions: stocks, bonds, futures, spot, options, etc.
2. Quantify the operation process of hedging products. First, build a long portfolio of stocks through quantitative investment, then short stock index futures to hedge market risks, and finally obtain stable excess returns.
3. Quantify the specific methods of stock selection. Quantitative investment generally chooses hundreds of stocks for investment analysis, which spreads risks and is suitable for investors with low risk preference and pursuing stable returns. The quantitative analyst establishes a model after making rules, and first tests it with historical data to see if it can make money; If possible, inject a small amount of money and accumulate firm transactions outside the model. If there is a profit after the firm offer, expand the amount of funds to judge whether it has an impact on the investment results. The final running models are all tempered.
Third, quantify the types of hedging strategies.
1. The neutral strategy of the stock market. This strategy, also known as alpha strategy, is one of the most commonly used strategies for private equity investment funds in China. From the perspective of eliminating market systemic risk (β), it hedges market risk by simultaneously constructing long and short positions, so as to obtain stable absolute returns. Usually, when buying stocks, short selling stock index futures with market value (or short selling) can not only hedge market risks, but also obtain excess returns brought by individual stocks.
2. Stock long-short strategy. This strategy has long exposure or short exposure, and the stock long-short strategy is difficult to operate, because in addition to selecting the target, it is necessary to judge whether the market is long or short. Because of this, the current quantitative long-short strategy is often based on momentum strategy, that is, when the market has an obvious upward or downward trend, it will make corresponding adjustments.
3.CTA (futures management) strategy CTA strategy is called commodity trading consulting strategy, also called managing futures. Commodity trading consultants predict the trend of investment targets such as commodities through derivatives such as futures options, and conduct long, short or long-short two-way investment operations in investment, thus obtaining investment returns for investors from assets other than traditional stocks and bonds. Futures management strategies are generally divided into financial futures and commodity futures.
4. Arbitrage strategy. The most common arbitrage strategy is secondary market arbitrage, including commodity intertemporal and cross-variety arbitrage, stock index futures intertemporal, spot arbitrage, ETF cross-market arbitrage, event arbitrage, delayed arbitrage and so on. The principle of arbitrage strategy is that when the prices of two or more related varieties are wrongly priced, in the process of price regression, the relatively undervalued varieties are bought and the relatively overvalued varieties are sold for profit. Among all quantitative investment strategies, arbitrage strategy has the most definite profit margin and the lowest risk.
Domestic quantitative arbitrage strategies mainly include risk-free arbitrage, precious metal arbitrage, cross-border arbitrage of commodity futures, intraday strategy of stocks and high-frequency market maker strategy.
Commonly used arbitrage strategies mainly include ETF arbitrage, spot arbitrage, option hedging and volatility arbitrage. ETF arbitrage strategy looks for price deviation, quickly places orders, and obtains "cash-to-cash" arbitrage income. Spot arbitrage automatically monitors the multi-variety spot spreads of multiple exchanges in real time, and relies on statistical arbitrage model to obtain sustained and stable returns. Option hedging provides a more flexible hedging scheme for institutional customers by using the exercise of options. Fluctuation arbitrage is a strategy aimed at maintaining delta neutrality. Earn profits from the dimension of implied volatility.
Fourth, ETF arbitrage strategy.
Index stock fund ETF is essentially a kind of securities that track indexes, industries, commodities or other assets. It has related prices and can be delivered and traded on the stock exchange like ordinary stocks. For example, SSE 50ETF consists of 50 blue chips from all walks of life, including China Construction, China Petrochemical, China Ping An, Guotai Junan, Yili and Kweichow Moutai.
This index fund composed of a basket of stocks is like a fruit gift box, and there is a price difference between the gift box and the bulk. Because of the different prices, we have arbitrage opportunities.
In ETF arbitrage, there are generally two arbitrage behaviors: discount arbitrage and premium arbitrage. This operation needs to deduct various transaction fees and costs.
1. Discount arbitrage. When traders find that the transaction price of ETF in the secondary market is lower than the net price in the primary market, they buy ETF at a low price in the secondary market and redeem ETF in the primary market, that is, exchange ETF funds for a basket of stocks, and then sell the exchanged stocks in the secondary market and convert them into cash.
2. Premium arbitrage. That is, when the ETF price in the secondary market is higher than the net value of the primary market, it is an operation. Traders buy a basket of stocks corresponding to ETFs from the secondary market, and then use this basket of stocks to buy ETFs from fund companies in the primary market, that is, exchange this basket of stocks for ETF funds, and then sell ETF funds at the transaction price (high price) in the secondary market of ETFs to obtain cash, thus realizing the arbitrage transaction of "cash to cash".