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February 17 - February 19, 2020
Simons once quoted Benjamin, the donkey in Animal Farm, to explain his attitude: “‘God gave me a tail to keep off the flies. But I’d rather have had no tail and no flies.’ That’s kind of the way I feel about publicity.”
Elwyn Berlekamp, a game theorist, Simons built a computer model capable of digesting torrents of data and selecting ideal trades, a scientific and systematic approach partly aimed at removing emotion from the investment process.
data cleansing, signals, and backtesting,
were hired for their brainpower, creativity, and ambition, rather than for any specific expertise or background.
Poker players surmise the mood of their opponents by judging their behavior and adjusting their strategies accordingly. Facing off against someone in a miserable mood calls for certain tactics; others are optimal if a competitor seems overjoyed and overconfident.
Markov model.
Edward Thorp.
Simons invariants—an invariant is a property that remains unchanged, even while undergoing particular kinds of transformations—which
Simons decided to treat financial markets like any other chaotic system.
hidden Markov process is one in which the chain of events is governed by unknown, underlying parameters or variables.
algorithm provided a way to estimate probabilities and parameters within these complex sequences with little more information than the
output of the processes.
building a sophisticated trading system fully dependent on preset algorithms that might even be automated.
Straus began to model data rather than just collect it.
called kernel methods—to analyze patterns in data sets.
At the time, the team couldn’t do much with the data, but the ability to search history to see how markets reacted to unusual events would later help Simons’s team build models to profit from market collapses and other unexpected events, helping the firm trounce markets during those periods.
“Try to get on a great team,” he says.
John Larry Kelly Jr.,
developed a method he had devised to profit at the racetrack.
combinatorial game theory
Technical Analysis of the Financial Markets,
rapid trading would push prices enough to cut into any gains, a cost called slippage,
Straus’s intraday data had been cleaned up, making it easier to develop fresh ideas for shorter-term trades.
scrutinize historic price information to discover sequences that might repeat, under the assumption that investors will exhibit similar behavior in the future.
sharing some similarities with techn...
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buying and selling infrequently magnifies the consequences of each move.
“If you trade a lot, you only need to be right 51 percent of the time,”
Monday’s price action often followed Friday’s, for example, while Tuesday saw reversions to earlier trends.
previous day’s trading often can predict the next day’s activity, something he termed the twenty-four-hour effect.
They let the data point them to the anomalies signaling opportunity.
Medallion’s system would buy when these brokers sold, and sell the investments back to them as they became more comfortable with the risk.
tradeable effects,
spotted barely perceptible patterns in various markets that had no apparent explanation.
ghosts,
tick data featuring intraday volume and pricing information for various futures, even as most investors ignored such granular information.
when you smell smoke, you get the hell out!”
prices often move in long-persisting trends.
“speculators should learn to take losses quickly and let their profits run”—tactics embraced by future traders.
Gerald Tsai Jr.
Richard Dennis
deviations that occur more frequently than most models suggest.
Barr Rosenberg developed quantitative models to track the factors influencing stocks.
Edward Thorp became the first modern mathematician to use quantitative strategies to invest sizable sums of money.
Beat the Dealer.
doctoral thesis of French mathematician Louis Bachelier, who, in 1900, developed a theory for pricing options on the Paris stock exchange using equations similar to those later employed by Albert Einstein to describe the Brownian motion of pollen particles.
publicity related to the investigation crippled his fund, and it closed in late 1988,
pairs trade.
statistical arbitrage,
factor investing
It wasn’t immediately obvious why some of the new trading signals worked, but as long as they had p-values, or probability values, under 0.01—meaning they appeared statistically significant,
