on Tuesday, April 19th, 222, it was cloudy with light rain. Quantitative hedging arbitrage contains three concepts.

I. Concept

(I) Quantification

"Quantification" refers to guiding investment by means of statistical methods and mathematical models, 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, and financial or engineering students

(2) hedging

"hedging" refers to coping with changes in the financial market by managing and reducing the risk of the portfolio system and obtaining relatively stable income.

"quantitative hedging" is a combination of the concepts of "quantification" and "hedging". In practice, hedge funds often use quantitative investment method, and they are often used interchangeably, 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 the related market or related electronic contract by taking advantage of the price difference change between the related markets or related electronic contracts, so as to gain profits in the expectation of price difference change.

Arbitrage trading modes are mainly divided into four types, namely: stock index futures arbitrage, commodity futures arbitrage, statistics and option arbitrage.

Arbitrage can be divided into two types: one is spot arbitrage, that is, arbitrage between futures and spot; The second is to arbitrage the spread between different months, different varieties and different markets in the futures market, which 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. According to the different trading positions established by traders in the market, intertemporal arbitrage can be divided into bull spread, bear market arbitrage, butterfly arbitrage and vulture arbitrage.

2. Quantifying hedging procedures and methods

1. Quantifying the objects of programmed hedging transactions: stocks, bonds, futures, spot, options, etc.

2. Quantifying the operation process of hedging products. Firstly, the long portfolio of stocks is constructed by quantitative investment, and then short stock index futures hedge market risks, and finally obtain stable excess returns.

3. Quantify the specific methods of stock selection. Quantitative investment generally selects hundreds of stocks for investment analysis to spread risks, which is suitable for investors with low risk preference and pursuing stable income. Quantitative analysts establish a certain model after making rules, and first test it with historical data to see if it can make money; If you can, 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. Neutral strategies in the stock market. This strategy, also known as Alpha strategy, is one of the most commonly used strategies in domestic private equity investment funds. From the perspective of eliminating market systemic risk (Beta), it hedges market risk by constructing both long and short positions at the same time, in order to obtain stable absolute returns. Usually, when buying stocks, short selling stock index futures with market value such as stocks (or short selling) can not only hedge market risks, but also obtain excess returns brought by individual stocks.

2. Stock long and short strategy. This strategy has long exposure or short exposure, and it is difficult to operate the stock long-short strategy, 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 obvious trend of rising or falling, it will be adjusted accordingly.

3. CTA (futures management) strategy. CTA strategy is called commodity trading consulting strategy, also known as managing futures. Commodity trading consultants predict the trend of investment targets such as commodities, and make long, short or long-short two-way investment operations in investment through derivatives such as futures options, so as to obtain 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 inter-period and cross-variety arbitrage, stock index futures inter-period, current arbitrage, ETF cross-market, event arbitrage, delay 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 the quantitative investment strategies, arbitrage strategy has the most definite profit space and the lowest risk.

domestic quantitative arbitrage strategies mainly include risk-free arbitrage, precious metal arbitrage, cross-border arbitrage of commodity futures, intraday stock strategy and high-frequency market maker strategy.

The arbitrage strategies commonly used mainly include ETF arbitrage, spot arbitrage, option hedging and volatility arbitrage. ETF arbitrage strategy looks for price deviation, quickly places an order, and obtains "cash-to-cash" arbitrage income. Spot arbitrage automatically monitors the multi-variety spot spread of multiple exchanges in real time, and relies on statistical arbitrage model to obtain sustained and stable income. Option hedging provides a more flexible hedging scheme for institutional customers by using the exercise of options. Volatility arbitrage is a strategy aimed at delta neutrality. Earn profits from the dimension of implied volatility.

fourth, ETF arbitrage strategy.

ETF, an index stock fund, is essentially a kind of securities that tracks indexes, industries, commodities or other assets, and has a related price, which can be delivered and traded on the stock exchange like ordinary stocks. For example, the SSE 5ETF consists of 5 blue-chip stocks 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. Since the prices are different, we have an arbitrage opportunity.

in ETF arbitrage, there are generally two arbitrage behaviors, discount arbitrage and premium arbitrage. This kind of operation needs to deduct various transaction fees and costs.

1. Discount arbitrage. When traders find that the transaction price in the secondary market of ETFs is lower than the net price in the primary market, they buy ETFs at a low price in the secondary market, and redeem ETFs in the primary market at a standstill, 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 purchase ETFs from fund companies in the primary market, that is, exchange the basket of stocks for ETF funds, and then sell the ETF funds in the secondary market of ETFs at the transaction price (high price) to get cash, thus realizing the arbitrage transaction of "cash to cash".