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Quantitative Finance: Quant Roadshow

This document outlines the instructions for a quantitative finance final project. Students must: 1) Create a daily trading strategy model in R that generates buy, hold, or sell signals. The model must be backtested and a preliminary report submitted. 2) Apply the trading signals from their model in a stock exchange simulator from November 8th to 27th. Performance will be evaluated on absolute and risk-adjusted returns. 3) Submit a final report by November 28th that explains the model methodology, provides the trade history and key performance metrics, and discusses lessons learned. 4) Present their strategy and results to prospective investors during one time slot between November 30th to December 2nd. The project will

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98 views3 pages

Quantitative Finance: Quant Roadshow

This document outlines the instructions for a quantitative finance final project. Students must: 1) Create a daily trading strategy model in R that generates buy, hold, or sell signals. The model must be backtested and a preliminary report submitted. 2) Apply the trading signals from their model in a stock exchange simulator from November 8th to 27th. Performance will be evaluated on absolute and risk-adjusted returns. 3) Submit a final report by November 28th that explains the model methodology, provides the trade history and key performance metrics, and discusses lessons learned. 4) Present their strategy and results to prospective investors during one time slot between November 30th to December 2nd. The project will

Uploaded by

Vidaup40
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Quantitative Finance

Final Project
TA: Gonzalo Fernández

Saturday 24th , 2020

Quant Roadshow
You are part of the lead Quant team at the UP Max Alpha’s new hedge fund. In a couple of weeks
the roadshow to look for investors will begin. You are tasked to create a trading strategy, execute
those signals in a stock exchange simulator and then present to prospect investors your pitch and
results.

1 Instructions
The final project has four parts:

1.1 The Strategy


With your broad knowledge you are tasked to create a daily model that provides a BUY, HOLD
or SELL signal and if the signal is different than HOLD then it has to output how much of the
asset to trade. You can use as a base anything taught in the course and you are expected to
broaden your horizons to investigate new topics to incorporate into your strategy. You must
marry your model and only do what it tells you. Disobeying your model will cause a
severe punishment in your grade.
You can even add restrictions to your trading model. Example: Only apply a BUY signal if the
addition of the position into your portfolio creates a potential portfolio with an absolute VaR
smaller than 2.5%. Remember to adjust the strategy to the rules of the simulator.
The built model has to be created in the R programming language (although workarounds for
using other languages inside R are allowed). You must send your .R or .Rmd file and a preliminar
report with your strategy and backtest to your TA (Gonzalo Fernández) before the start of the
trading time November 8th 11 : 59p.m.
Reading different blogs and papers are encouraged. Citings of such are expected in your preliminary
and final report. Potential sources include but are not limited to:
1. Arvix
2. Journal of Portfolio Management
3. Man Institute AHL

1.2 Your performance


Inside the Stock Exchange simulator you are to apply the trading signals your model outputs to
your portfolio each trading day up until the end of the trading period November 27th .
At the end of the trading period you will be evaluated by:
1. Absolute return: Ranking of your absolute return against your peer groups.
2. Risk adjusted return: Ranking and mean Sharpe Ratio.

1
1.3 The report
Your report will have the following structure:
1. Methodology: Explain your model. Why is it a theoretically good model? What does it
capture that other models do not? (Must be included in the preliminar report)
2. Trade history: Report your holdings, weights for each, your portfolio value, daily portfolio
return and standard deviation (ex ante calculated based on the historical sd of each asset
of your portfolio, use a 2 year window) of your portfolio for every single day of the trading
period. Detail the signal of each executed trade.
3. Key findings: How you could’ve improved your model? What did you learn in this assign-
ment?
You must send the report TA (Gonzalo Fernández) before the due date November 28th 11:59
p.m. EST.

1.4 The presentation


During the week of November 30th , each group has to choose a block of up to 45 minutes
from 8p.m. to 10p.m. to present to prospect institutional investors. Be sure to have a pristine
presentation to attract investors that are already familiar with quant funds. Prior reviews with
your TA are encouraged.

2 The Simulator
Rules:
1. You should be fully invested since day 1. No cash positions are allowed unless your model
requires so.
2. Trades will have 0 commission value.
3. Short selling is allowed.
4. Partial shares are allowed.
5. Only the following instruments are allowed for simplification purposes:
SPY - SPDR S&P 500 ETF TRUST
EEM - ISHARES MSCI EMERGING MARKETS ETF
QQQ - INVESCO QQQ TRUST SERIES I
FXI - ISHARES CHINA LARGE-CAP ETF
EWJ - ISHARES MSCI JAPAN ETF
EZU - ISHARES MSCI EUROZONE ETF
AAXJ - ISHARES MSCI ALL COUNTRY ASIA EX JAPAN ETF
ILF - ISHARES LATIN AMERICA 40 ETF
LQD - ISHARES IBOXX $ INVESTMENT GRADE CORPORATE BOND ETF
HYG - ISHARES IBOXX $ HIGH YIELD CORPORATE BOND ETF
TLT - ISHARES 20+ YEAR TREASURY BOND ETF
SHY - ISHARES 1-3 YEAR TREASURY BOND ETF
IEF - ISHARES 7-10 YEAR TREASURY BOND ETF

2
3 Grading
The grade for the final project will be split as:
Strategy 25%
Performance 25%. Back test from 2009/01/01 to 2020/09/30 and two week live trading window.
Report 25%
Presentation 25%

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