Special Topics in Quantitative Trading

This chapter explains important themes in quantitative trading in more detail. These themes form the bases of statistical arbitrage trading, and most quantitative traders are conversant in most of these quantitative trading related topics. They are also very helpful in informing one's intuition about trading. Thus, this chapter explains two basic type of trading strategy, which are mean-reverting and momentum strategies. Wherein, statistical arbitrage is actually far simpler than trading derivatives (e.g., options) or fixed-income instruments, both conceptually and mathematically. This chapter describes a large part of the statistical arbitrageur's standard arsenal: mean reversion and momentum, regime switching, stationarity and cointegration, arbitrage pricing theory or factor model, seasonal trading models, and, finally, high-frequency trading.