Equity index futures returns: lessons of 2000-2018

The average annualized return of local-currency index futures for 25 international markets has been 6% with a standard deviation of just under 20%. All...

The dangerous disregard for fat tails in quantitative finance

The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme...

Understanding collateral runs

In normal financial runs lenders want their money back. In collateral runs borrowers want their collateral back. In today’s highly collateralized financial system the...

Interest rate swap returns: empirical lessons

Interest rate swaps trade duration risk across developed and emerging markets. Since 2000 fixed rate receivers have posted positive returns in 26 of 27...

Predicting asset price correlation for dynamic hedging

Dynamic hedging requires prediction of correlations and “betas” across asset classes and contracts. A new paper on dynamic currency hedging proposes two enhancements of...

Equity alpha through volatility targeting

Volatility targeting has historically enhanced the statistical alpha of standard equity strategies. That is because volatility is more predictable in the short-term than returns....

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Commodity carry

Across assets, carry is defined as return for unchanged prices and is calculated based on the difference between spot and futures prices (view post...

Understanding the correlation of equity and bond returns

The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....

CDS term premia and exchange rates

The term structure of sovereign credit default swaps (CDS) is indicative of country-specific financial shocks because rising country risk affects short-dated maturities more than...

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