InFINeeti Vivaan Edition
August 2017
31
use of machine learning is used is unknown to the outsiders and most companies do not disclose proper models used in their Quant funds. This is referred as Black Box trading. Below are some models used in Quant Funds. Models Involved Quant Funds
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Although not a huge data is available on models, here are some models used in quant funds. 1.Short Term High Frequency data models – These are based on short term price fluctuations. The model tries to find anomalies related to these fluctuations and do fast in and out trades to take advantage those anomalies and make
money in very short term. 2.Statistical Arbitrage Type models – Uses price patterns and relationships for trading. 3.Double Agent Model: This model tries to find out who is using which model for trading and calculates their next step and exploits their weakness to gain in the market. 4. Factor Based Modelling: In this model, Independent variables such as price earnings ratio, inflation rate, unemployment rate are used to predict a dependent variable such as returns or stock price fluctuations. The formula for calculating return is given below.
Companies Pioneering in Quant Funds Below is the list of companies majorly investing in Quant Funds. DE Shaw, Two Sigma and Renaissance Technologies are biggest companies in Quant Funds. Below is a list of companies. The company size do now indicate their total investment in Quant Funds as they are also trading in other types of Hedge Funds. Will Quant Funds replace humans? With the advent of technology, Quants funds are getting more accurate. The decision of Quant Fund is machine based and it is free from biases and
Company
Size
Founded in
Headquarters
D.E Shaw
$ 48 billion
1988
New York
Quantitative Manage- $ 112 billion in total ment Associates assets Two Sigma $27 billion
1975
Newark
2001
New York
RENAISSANCE TECHNOLOGIES Alphasimplex Group
$73 billion
1982
London
NA
NA
Cambridge
Capula
$12 billion
2005
London
AQR Capital
$77.5 billion
1998
Greenwich, CT