Uncategorized – Relative Value Arbitrage

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Momentum Strategies: Profitability, Predictability, and Risk Management
Momentum strategies have long been a cornerstone of investing, relying on the premise that past winners continue to outperform in the near future. This post explores the effectiveness of momentum strategies, analyzing their ability to generate abnormal returns and assessing their viability in different markets. While previous research has demonstrated the profitability of momentum strategies, […]
The Predictive Power of Dividend Yield in Equity Markets
Dividend yield has long been a cornerstone of equity valuation. In this post, we explore how dividend yield predicts stock returns, its impact on stock volatility, and why it holds unique significance for mature, dividend-paying firms. Relationship Between Implied Volatility and Dividend Yield Reference [1] explores the relationship between implied volatility (IV) and dividend yield. […]
Monte Carlo Simulations: Pricing Weather Derivatives and Convertible Bonds
Monte Carlo simulations are widely used in science, engineering, and finance. They are an effective method capable of addressing a wide range of problems. In finance, they are applied to derivative pricing, risk management, and strategy design. In this post, we discuss the use of Monte Carlo simulations in pricing complex derivatives. Pricing of Weather […]
PCA in Action: From Commodity Derivatives to Dispersion Trading
Principal Component Analysis (PCA) is a dimensionality reduction technique used to simplify complex datasets. It transforms the original variables into a smaller set of uncorrelated variables called principal components, ranked in order of their contribution to the dataset’s total variance. In this post, we’ll discuss various applications of PCA. Pricing Commodity Derivatives Using Principal Component […]
CAPM, WACC, and Beyond: Beta’s Application in Arbitrage
Beta is a measure of an asset’s sensitivity to market movements, indicating how much its price is expected to change in relation to the overall market. Beta is often used in CAPM and the calculation of WACC. However, it can also be applied in trading, specifically in arbitrage. In this post, I’ll discuss beta arbitrage. […]