Study and implementation of some quantitative trading models

Quantitative or algorithmic trading is the automatization of investments decisions obeying a fixed or dynamic sets of rules to determine trading orders. It has increasingly made its way up to 70% of the trading volume of one of the biggest financial markets such as the New York Stock Exchange (NYSE). However, there is not a signi cant amount of academic literature devoted to it due to the private nature of investment banks and hedge funds. This projects aims to review the literature and discuss the models available in a subject that publications are scarce and infrequently. We review the basic and fundamental mathematical concepts needed for modeling financial markets such as: stochastic processes, stochastic integration and basic models for prices and spreads dynamics necessary for building quantitative strategies. We also contrast these models with real market data with minutely sampling frequency from the Dow Jones Industrial Average (DJIA). Quantitative strategies try to exploit two types of behavior: trend following or mean reversion. The former is grouped in the so-called technical models and the later in the so-called pairs trading. Technical models have been discarded by financial theoreticians but we show that they can be properly cast into a well defined scientific predictor if the signal generated by them pass the test of being a Markov time. That is, we can tell if the signal has occurred or not by examining the information up to the current time; or more technically, if the event is F_t-measurable. On the other hand the concept of pairs trading or market neutral strategy is fairly simple. However it can be cast in a variety of mathematical models ranging from a method based on a simple euclidean distance, in a co-integration framework or involving stochastic differential equations such as the well-known Ornstein-Uhlenbeck mean reversal ODE and its variations. A model for forecasting any economic or financial magnitude could be properly defined with scientific rigor but it could also lack of any economical value and be considered useless from a practical point of view. This is why this project could not be complete without a backtesting of the mentioned strategies. Conducting a useful and realistic backtesting is by no means a trivial exercise since the \laws" that govern financial markets are constantly evolving in time. This is the reason because we make emphasis in the calibration process of the strategies' parameters to adapt the given market conditions. We find out that the parameters from technical models are more volatile than their counterpart form market neutral strategies and calibration must be done in a high-frequency sampling manner to constantly track the currently market situation. As a whole, the goal of this project is to provide an overview of a quantitative approach to investment reviewing basic strategies and illustrating them by means of a back-testing with real financial market data. The sources of the data used in this project are Bloomberg for intraday time series and Yahoo! for daily prices. All numeric computations and graphics used and shown in this project were implemented in MATLAB^R scratch from scratch as a part of this thesis. No other mathematical or statistical software was used.

Epidemic models with an infected-infectious period

The introduction of an infective-infectious period on the geographic spread of epidemics is considered in two different models. The classical evolution equations arising in the literature are generalized and the existence of epidemic wave fronts is revised. The asymptotic speed is obtained and improves previous results for the Black Death plague

Predicted effects of small decreases in energy expenditure on weight gain in adult women.

Small daily positive energy imbalances of 200 to 800 kJ (about 50 to 200 kcal) due to reduced resting energy expenditure (REE), reduced diet-induced thermogenesis, or physical inactivity are believed to predispose to obesity. However, estimates of the magnitude of the weight gain often fail to account for concurrent changes in body composition and increases in maintenance energy requirements as weight increases and energy equilibrium is re-established. Using previously reported data on body composition and REE in women and the energy cost of tissue deposition, we used mathematical models to predict the theoretical effect of a persistent reduction in energy expenditure on long-term weight gain, assuming no adaptation in energy intake. The analyses indicate the following effects of a reduced level of energy expenditure in lean and obese women: (i) REE rises more slowly with increasing degrees of obesity due to a declining proportion of the more metabolically active fat-free mass; so, for the same positive energy balance, a significantly greater weight gain is expected for obese than for lean women before energy equilibrium is re-established; (ii) due to the greater energy density of adipose tissue, the time course of weight gain to achieve energy balance is longer for obese subjects: in general, this is approximately five years for lean and ten years for obese women; (iii) the magnitude of weight gain of lean women in response to a reduced energy expenditure of 200 to 800 kJ/day is only about 3 to 15 kg, amounts insufficient to explain severe obesity.

Exactly solvable phase oscillator models with syncrhonization dynamics

Populations of phase oscillators interacting globally through a general coupling function f(x) have been considered. We analyze the conditions required to ensure the existence of a Lyapunov functional giving close expressions for it in terms of a generating function. We have also proposed a family of exactly solvable models with singular couplings showing that it is possible to map the synchronization phenomenon into other physical problems. In particular, the stationary solutions of the least singular coupling considered, f(x) = sgn(x), have been found analytically in terms of elliptic functions. This last case is one of the few nontrivial models for synchronization dynamics which can be analytically solved.

Resting-State Functional Connectivity Emerges from Structurally and Dynamically Shaped Slow Linear Fluctuations.

Brain fluctuations at rest are not random but are structured in spatial patterns of correlated activity across different brain areas. The question of how resting-state functional connectivity (FC) emerges from the brain's anatomical connections has motivated several experimental and computational studies to understand structure-function relationships. However, the mechanistic origin of resting state is obscured by large-scale models' complexity, and a close structure-function relation is still an open problem. Thus, a realistic but simple enough description of relevant brain dynamics is needed. Here, we derived a dynamic mean field model that consistently summarizes the realistic dynamics of a detailed spiking and conductance-based synaptic large-scale network, in which connectivity is constrained by diffusion imaging data from human subjects. The dynamic mean field approximates the ensemble dynamics, whose temporal evolution is dominated by the longest time scale of the system. With this reduction, we demonstrated that FC emerges as structured linear fluctuations around a stable low firing activity state close to destabilization. Moreover, the model can be further and crucially simplified into a set of motion equations for statistical moments, providing a direct analytical link between anatomical structure, neural network dynamics, and FC. Our study suggests that FC arises from noise propagation and dynamical slowing down of fluctuations in an anatomically constrained dynamical system. Altogether, the reduction from spiking models to statistical moments presented here provides a new framework to explicitly understand the building up of FC through neuronal dynamics underpinned by anatomical connections and to drive hypotheses in task-evoked studies and for clinical applications.

Dynamic models of viral replication and latency.

PURPOSE OF REVIEW: HIV targets primary CD4(+) T cells. The virus depends on the physiological state of its target cells for efficient replication, and, in turn, viral infection perturbs the cellular state significantly. Identifying the virus-host interactions that drive these dynamic changes is important for a better understanding of viral pathogenesis and persistence. The present review focuses on experimental and computational approaches to study the dynamics of viral replication and latency. RECENT FINDINGS: It was recently shown that only a fraction of the inducible latently infected reservoirs are successfully induced upon stimulation in ex-vivo models while additional rounds of stimulation make allowance for reactivation of more latently infected cells. This highlights the potential role of treatment duration and timing as important factors for successful reactivation of latently infected cells. The dynamics of HIV productive infection and latency have been investigated using transcriptome and proteome data. The cellular activation state has shown to be a major determinant of viral reactivation success. Mathematical models of latency have been used to explore the dynamics of the latent viral reservoir decay. SUMMARY: Timing is an important component of biological interactions. Temporal analyses covering aspects of viral life cycle are essential for gathering a comprehensive picture of HIV interaction with the host cell and untangling the complexity of latency. Understanding the dynamic changes tipping the balance between success and failure of HIV particle production might be key to eradicate the viral reservoir.

Prediction of Childhood Asthma Using Conditional Probability and Discrete Event Simulation

Abstract: Asthma prevalence in children and adolescents in Spain is 10-17%. It is the most common chronic illness during childhood. Prevalence has been increasing over the last 40 years and there is considerable evidence that, among other factors, continued exposure to cigarette smoke results in asthma in children. No statistical or simulation model exist to forecast the evolution of childhood asthma in Europe. Such a model needs to incorporate the main risk factors that can be managed by medical authorities, such as tobacco (OR = 1.44), to establish how they affect the present generation of children. A simulation model using conditional probability and discrete event simulation for childhood asthma was developed and validated by simulating realistic scenario. The parameters used for the model (input data) were those found in the bibliography, especially those related to the incidence of smoking in Spain. We also used data from a panel of experts from the Hospital del Mar (Barcelona) related to actual evolution and asthma phenotypes. The results obtained from the simulation established a threshold of a 15-20% smoking population for a reduction in the prevalence of asthma. This is still far from the current level in Spain, where 24% of people smoke. We conclude that more effort must be made to combat smoking and other childhood asthma risk factors, in order to significantly reduce the number of cases. Once completed, this simulation methodology can realistically be used to forecast the evolution of childhood asthma as a function of variation in different risk factors.

Application of theoretical models to financial innovation

The present paper is aimed at providing a general strategic overview of the existing theoretical models that have applications in the field of financial innovation. Whereas most financialdevelopments have relied upon traditional economic tools, a new stream of research is defining a novel paradigm in which mathematical models from diverse scientific disciplines are being applied to conceptualize and explain economic and financial behavior. Indeed, terms such as ‘econophysics’ or ‘quantum finance’ have recently appeared to embrace efforts in this direction. As a first contact with such research, the project will present a brief description of some of the main theoretical models that have applications in finance and economics, and will try to present, if possible, potential new applications to particular areas in financial analysis, or new applicable models. As a result, emphasiswill be put on the implications of this research for the financial sector and its future dynamics.

Monte Carlo Methods in Parameter Estimation of Nonlinear Models

Yksi keskeisimmistä tehtävistä matemaattisten mallien tilastollisessa analyysissä on mallien tuntemattomien parametrien estimointi. Tässä diplomityössä ollaan kiinnostuneita tuntemattomien parametrien jakaumista ja niiden muodostamiseen sopivista numeerisista menetelmistä, etenkin tapauksissa, joissa malli on epälineaarinen parametrien suhteen. Erilaisten numeeristen menetelmien osalta pääpaino on Markovin ketju Monte Carlo -menetelmissä (MCMC). Nämä laskentaintensiiviset menetelmät ovat viime aikoina kasvattaneet suosiotaan lähinnä kasvaneen laskentatehon vuoksi. Sekä Markovin ketjujen että Monte Carlo -simuloinnin teoriaa on esitelty työssä siinä määrin, että menetelmien toimivuus saadaan perusteltua. Viime aikoina kehitetyistä menetelmistä tarkastellaan etenkin adaptiivisia MCMC menetelmiä. Työn lähestymistapa on käytännönläheinen ja erilaisia MCMC -menetelmien toteutukseen liittyviä asioita korostetaan. Työn empiirisessä osuudessa tarkastellaan viiden esimerkkimallin tuntemattomien parametrien jakaumaa käyttäen hyväksi teoriaosassa esitettyjä menetelmiä. Mallit kuvaavat kemiallisia reaktioita ja kuvataan tavallisina differentiaaliyhtälöryhminä. Mallit on kerätty kemisteiltä Lappeenrannan teknillisestä yliopistosta ja Åbo Akademista, Turusta.

Once and for all - How people change strategy to ignore irrelevant information in visual tasks

Ignoring irrelevant visual information aids efficient interaction with task environments. We studied how people, after practice, start to ignore the irrelevant aspects of stimuli. For this we focused on how information reduction transfers to rarely practised and novel stimuli. In Experiment 1, we compared competing mathematical models on how people cease to fixate on irrelevant parts of stimuli. Information reduction occurred at the same rate for frequent, infrequent, and novel stimuli. Once acquired with some stimuli, it was applied to all. In Experiment 2, simplification of task processing also occurred in a once-for-all manner when spatial regularities were ruled out so that people could not rely on learning which screen position is irrelevant. Apparently, changes in eye movements were an effect of a once-for-all strategy change rather than a cause of it. Overall, the results suggest that participants incidentally acquired knowledge about regularities in the task material and then decided to voluntarily apply it for efficient task processing. Such decisions should be incorporated into accounts of information reduction and other theories of strategy change in skill acquisition.

Steady-state global optimization of metabolic non-linear dynamic models through recasting into power-law canonical models

Background: Design of newly engineered microbial strains for biotechnological purposes would greatly benefit from the development of realistic mathematical models for the processes to be optimized. Such models can then be analyzed and, with the development and application of appropriate optimization techniques, one could identify the modifications that need to be made to the organism in order to achieve the desired biotechnological goal. As appropriate models to perform such an analysis are necessarily non-linear and typically non-convex, finding their global optimum is a challenging task. Canonical modeling techniques, such as Generalized Mass Action (GMA) models based on the power-law formalism, offer a possible solution to this problem because they have a mathematical structure that enables the development of specific algorithms for global optimization. Results: Based on the GMA canonical representation, we have developed in previous works a highly efficient optimization algorithm and a set of related strategies for understanding the evolution of adaptive responses in cellular metabolism. Here, we explore the possibility of recasting kinetic non-linear models into an equivalent GMA model, so that global optimization on the recast GMA model can be performed. With this technique, optimization is greatly facilitated and the results are transposable to the original non-linear problem. This procedure is straightforward for a particular class of non-linear models known as Saturable and Cooperative (SC) models that extend the power-law formalism to deal with saturation and cooperativity. Conclusions: Our results show that recasting non-linear kinetic models into GMA models is indeed an appropriate strategy that helps overcoming some of the numerical difficulties that arise during the global optimization task.

Mittausjärjestelmä IGBT:n lämpötilan määrittämiseen

Tässä diplomityössä tutustutaan IGBT:n ja tehodiodin rakenteisiin, lämmön muodostumiseen kyseisissä komponenteissa sekä menetelmiin, joilla komponenttien lämpötilat voidaan määrittää. Työssä suunnitellaan ja rakennetaan mittausjärjestelmä, jolla IGBT:n ja tehodiodin lämpötilat voidaan määrittää suoraan mittaamalla sekä matemaattisten mallien avulla. Mittausjärjestelmä koostuu DC-chopper -kytkennästä, kuormavirran, välipiirin jännitteen sekä lämpötilan mittauksista. Lämpötilan mittauksissa käytettiin komponenttien pintoihin liitettyjä termopareja. Matemaattisia malleja varten mittausjärjestelmään lisättiin välipiirin jännitteen sekä kuormavirran mittaus. Laitteiston ohjaus sekä mittaustulosten tallentaminen toteutettiin dSPACE -laitteistolla. Mittausjärjestelmän toimivuus testattiin Lappeenrannan teknillisen yliopiston Säätötekniikan laboratoriossa tehdyillä mittauksilla.

A measure of stability as a criterion for the verification and analysis of simulation models

The aim of this study is to define a new statistic, PVL, based on the relative distance between the likelihood associated with the simulation replications and the likelihood of the conceptual model. Our results coming from several simulation experiments of a clinical trial show that the PVL statistic range can be a good measure of stability to establish when a computational model verifies the underlying conceptual model. PVL improves also the analysis of simulation replications because only one statistic is associated with all the simulation replications. As well it presents several verification scenarios, obtained by altering the simulation model, that show the usefulness of PVL. Further simulation experiments suggest that a 0 to 20 % range may define adequate limits for the verification problem, if considered from the viewpoint of an equivalence test.

A comparison of electricity spot prices simulation using ARMA-GARCH and mean-reverting models

The aim of this work is to compare two families of mathematical models for their respective capability to capture the statistical properties of real electricity spot market time series. The first model family is ARMA-GARCH models and the second model family is mean-reverting Ornstein-Uhlenbeck models. These two models have been applied to two price series of Nordic Nord Pool spot market for electricity namely to the System prices and to the DenmarkW prices. The parameters of both models were calibrated from the real time series. After carrying out simulation with optimal models from both families we conclude that neither ARMA-GARCH models, nor conventional mean-reverting Ornstein-Uhlenbeck models, even when calibrated optimally with real electricity spot market price or return series, capture the statistical characteristics of the real series. But in the case of less spiky behavior (System prices), the mean-reverting Ornstein-Uhlenbeck model could be seen to partially succeeded in this task.

Models and applications for risk assessment and prediction of Asian soybean rust epidemics

Asian rust of soybean [Glycine max (L.) Merril] is one of the most important fungal diseases of this crop worldwide. The recent introduction of Phakopsora pachyrhizi Syd. & P. Syd in the Americas represents a major threat to soybean production in the main growing regions, and significant losses have already been reported. P. pachyrhizi is extremely aggressive under favorable weather conditions, causing rapid plant defoliation. Epidemiological studies, under both controlled and natural environmental conditions, have been done for several decades with the aim of elucidating factors that affect the disease cycle as a basis for disease modeling. The recent spread of Asian soybean rust to major production regions in the world has promoted new development, testing and application of mathematical models to assess the risk and predict the disease. These efforts have included the integration of new data, epidemiological knowledge, statistical methods, and advances in computer simulation to develop models and systems with different spatial and temporal scales, objectives and audience. In this review, we present a comprehensive discussion on the models and systems that have been tested to predict and assess the risk of Asian soybean rust. Limitations, uncertainties and challenges for modelers are also discussed.