Computational Investing
MC2: Computational Investing
Lessons: In this mini-course, we focus on modeling the behavior of stock markets.
- So you want to be a hedge fund manager?
- Market mechanics
- What is a company worth?
- The Capital Assets Pricing Model (CAPM)
- How hedge funds use the CAPM
- Technical Analysis
- Dealing with data
- Efficient Markets Hypothesis
- The Fundamental Law of active portfolio management
- Portfolio optimization and the efficient frontier
Projects:
- Build a market simulator
- Invent your own technical indicator
- Write a strategy that generates orders
Types of funds
ETF = Exchange-Traded Fund
Liquidity and capitalization
liquidity => the ease with which one can buy or sell shares in a particular holding
large capitalization => how much is the company worth = shares that are outstanding × the price of the stock
Some popular sources for financial and investment data:
ETF => 4 or 3 letters
Mutual fund => 5 letters
Incentives for fund managers
2 and 20 => 2% AUM and 20% profits
Assets Under Management (AUM) is the total amount of money being managed by the fund.
Two and twenty
Incentives quiz
How funds attract investors
Hedge fund goals and metrics
The computing inside a hedge fund
live portfolio == order ==> target portfolio
dont want to do everything at once
machine leanrnig => forcasting
What is in an order?
Market => not to specify the money
Limit => hand-craft some price limit for trading
The order book
Up or down
If you put in a SELL order (at market value), you will sell the first 100 shares at $99.95, the next 50 at $99.90, and so on.
In case of a BUY order, the market value won't change for the first 1000 shares.
So, depending on your volume of trade, the value of the stock will likely go down.
How orders affect the order book
How orders get to the exchange
How hedge funds exploit market mechanics
Additional order types
Mechanics of short selling: Entry
Short selling
The buying occurred after selling, but nonetheless, you sold the stocks for more than you paid - so profit!
Mechanics of short selling: Exit
What can go wrong?
