We study the dynamics of VIX futures and ETNs/ETFs. We find that contrary to classical commodities, VIX and VIX futures exhibit large volatility and skewness, consistent with the absence of cash-and-carry arbitrage. The constant-maturity futures (CMF) term-structure can be modeled as a...

We study model-driven statistical arbitrage strategies in U.S. equities. Trading signals are generated in two ways: using Principal Component Analysis and using sector ETFs. In both cases, we consider the residuals, or idiosyncratic components of stock returns, and model them as a mean-reverting...

We use Principal Component Analysis (PCA) to study the Brady Bond Debt of the four primary Latin American sovereign issuers: Argentina, Brazil, Mexico, and Venezuela. Our dataset covers a period of 5 years starting in July 1994 and consists of daily sovereign ("stripped") yield levels for the...

A general approach for calibrating Monte Carlo models to the market prices of benchmark securities is presented. Starting from a given model for market dynamics (price diffusion, rate diffusion, etc.), the algorithm corrects price-misspecifications and finite-sample effects in the simulation by...

The daily rebalancing of a leveraged exchange traded fund(LETF) requires the fund manager to systematically modify the amount of index exposure. In order to achieve the investment objective of the fund, managers of LETFs use total return swaps with the appropriate leverage ratio. This daily...

In this paper we developed an econometric model to empirically test the hard-to-borrow model of Avellaneda and Lipkin (2009) where asset prices jump as result of "buy-in" procedures. The model is estimated using an extent version of simulated maximum likelihood (SML) for a selected group of...

Portfolio risk, introduced by Markowitz in 1952, and defined as the standard deviation of the portfolio return, is an important metric in the Modern Portfolio Theory (MPT). A popular method for portfolio selection is to manage the risk and return of a portfolio according to the...

Traders worldwide use interest rate options and futures to speculate on future monetary decisions, in particular in countries where the monetary regime is Inflation Targeting (IT). Central Banks under an IT regime tend to define the target rate on scheduled meetings. We propose in this paper a...

We analyze portfolios constructed from the principal eigenvector of the equity re- turns’ correlation matrix and compare these portfolios with the capitalization weighted market portfolio. It is well known empirically that principal eigenportfolios are a good proxy for the market portfolio. We...