PRESENTATION ON QUANTITATIVE FINANCE

MAYANK

BHATNAGAR

QUANTITATIVE FINANCE

Computational finance or financial engineering is a cross-disciplinary field which relies on mathematical finance, numerical methods and computer simulations to make trading, hedging and investment decisions, as well as facilitating the risk management of those decisions.

Utilizing various methods, practitioners of quantitative finance aims to precisely determine the financial risk that certain financial instruments create.

Quant Analyst

The Quant Analyst often have an excellent knowledge of Maths/Physics/Computational Finance combined with strong programming skills (Visual Basic, C++, under NT/Unix). They build the analytical models, whose output is used by clients, traders, sales or analysts.

Quant Analyst Responsibilities

Responsible for the development and deployment of new analytics and models pertaining to the Business. Responsible for helping to architect real-time trading systems across multiple products and functions. Provide application and analytics support to Quantitative Researchers, Portfolio Managers and Traders. Implementation of the prototype models developed with QR. Develop new financial analytics functions using advanced mathematical skills and business knowledge to support QRs need to analyze new products, enhance risk mgmt, and or pricing functionality.

Algorithmic Trading

Developing advanced algorithms that go far beyond basic models to seek out liquidity in illiquid and fragmented exchanges and dark pools. Developing pre and post trade analytics to assess performance and estimate market impact, involving statistical analysis of high frequency market tick data. Adding value by providing customised algorithms for clients, and working with traders to advise clients on optimal algorithms. Programming ranges from SAS/Matlab to C#/C++ or Java, depending on the firm and the role.

Pros of Algorithmic Trading

Adaptable:

Providing high speed transmission of market data and transaction messages to other

applications and users

Offering a vendor-agnostic platform that is able to accept and distribute data from any market data vendor Having pre-integrated security and monitoring for both compliance and cost-effective operations

Streamlined:

Ensuring optimized acquisition, processing, and delivery of market data through an efficient and integrated platform

Reliable:

-Enabling continuous delivery of market data with the robustness to support the needs of the front-office

Open Architecture:

Promoting interoperability by using open published specifications for Application Program Interface (APIs), protocols, and data and file formats. Open architectures enable companies to build loosely coupled, flexible, and reconfigurable solutions

Cons of Algorithmic Trading

Lack of Visibility
We know what a specific algorithm is supposed to do, measure its pre-trade analytics and see how the post-trade results match up to that expectation. But if the trader didnt select the most optimal algorithm for that trade little can be done. This problem is caused by a lack of visibility and transparency into the algorithm while it is executing orders.

Algorithms Acting on Other Algorithms

If fund managers trading pattern is spotted and regular; tracked with the use of algorithms, then these algorithms are liable to be reverse engineered. This implies that their buy and sell orders are pre-empted and used to the maximum effect by their competitors. Here, algorithms are acting on other algorithms.

Missing IngredientThe Traders Gut Feel

Algorithms are simply advanced trading tools and they cannot replace the human elements or make interaction redundant. Algorithms can not compete with the ability of the human brain to react to unanticipated changes and opportunities.

THANKS