Twofish's Blog

February 2, 2007

Statistical arbitrage and wavelets

Filed under: finance, quantitative finance — twofish @ 8:06 am

I noticed that the hot new skill right now seems to be high frequency statistical arbitrage.  I think that the interest in statistical arbritrage is very closely related to the fact that the New York Stock Exchange is going over to a hybrid system of electronic trading, and one way of thinking about statistical arbritrage is that what you are doing is programming a computer to do what a human being used to do (i.e. recognize short term patterns and profit from them).

The one curious thing is that wavelets and information theory ought to be useful in doing stat arb, but I haven’t seen any references to either being used.  One problem that I’m seeing is that wavelets and information theory assume a continuous field or a regular discrete mesh, and when you are dealing with high frequency data, you are getting irregular inputs, and at that point one finds oneself at the cutting edge of applied mathematics.

Advertisements

2 Comments »

  1. […] Arbitrage and Wavelets An interesting post by Joe Wang at the twofish blog: I noticed that the hot new skill right now seems to be high frequency statistical […]

    Pingback by Statistical Arbitrage and Wavelets « Perfectly Reasonable Deviations — February 8, 2007 @ 11:59 pm

  2. somewhere in the unknow hedge fund universe, this was tried. Unforturnately, the idiot did not get the math totally right, so it was declared useless.

    Comment by don't you think they tried? — March 16, 2007 @ 6:06 pm


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.

%d bloggers like this: