You are previewing Inside the Black Box: A Simple Guide to Quantitative and High Frequency Trading, 2nd Edition.
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Inside the Black Box: A Simple Guide to Quantitative and High Frequency Trading, 2nd Edition

Book Description

New edition of book that demystifies quant and algo trading

In this updated edition of his bestselling book, Rishi K Narang offers in a straightforward, nontechnical style—supplemented by real-world examples and informative anecdotes—a reliable resource takes you on a detailed tour through the black box. He skillfully sheds light upon the work that quants do, lifting the veil of mystery around quantitative trading and allowing anyone interested in doing so to understand quants and their strategies. This new edition includes information on High Frequency Trading.

  • Offers an update on the bestselling book for explaining in non-mathematical terms what quant and algo trading are and how they work

  • Provides key information for investors to evaluate the best hedge fund investments

  • Explains how quant strategies fit into a portfolio, why they are valuable, and how to evaluate a quant manager

This new edition of Inside the Black Box explains quant investing without the jargon and goes a long way toward educating investment professionals.

Table of Contents

  1. Cover
  2. Additional Praise for Inside the Black Box
  3. Series
  4. Title Page
  5. Copyright
  6. Dedication
  7. Preface to the Second Edition
  8. Acknowledgments
  9. Part One: The Quant Universe
    1. Chapter 1: Why Does Quant Trading Matter?
      1. THE BENEFIT OF DEEP THOUGHT
      2. THE MEASUREMENT AND MISMEASUREMENT OF RISK
      3. DISCIPLINED IMPLEMENTATION
      4. SUMMARY
      5. NOTES
    2. Chapter 2: An Introduction to Quantitative Trading
      1. WHAT IS A QUANT?
      2. WHAT IS THE TYPICAL STRUCTURE OF A QUANTITATIVE TRADING SYSTEM?
      3. SUMMARY
      4. NOTES
  10. Part Two: Inside the Black Box
    1. Chapter 3: Alpha Models: How Quants Make Money
      1. TYPES OF ALPHA MODELS: THEORY-DRIVEN AND DATA-DRIVEN
      2. THEORY-DRIVEN ALPHA MODELS
      3. DATA-DRIVEN ALPHA MODELS
      4. IMPLEMENTING THE STRATEGIES
      5. BLENDING ALPHA MODELS
      6. SUMMARY
      7. NOTES
    2. Chapter 4: Risk Models
      1. LIMITING THE AMOUNT OF RISK
      2. LIMITING THE TYPES OF RISK
      3. SUMMARY
      4. NOTES
    3. Chapter 5: Transaction Cost Models
      1. DEFINING TRANSACTION COSTS
      2. TYPES OF TRANSACTION COST MODELS
      3. SUMMARY
      4. NOTE
    4. Chapter 6: Portfolio Construction Models
      1. RULE-BASED PORTFOLIO CONSTRUCTION MODELS
      2. PORTFOLIO OPTIMIZERS
      3. OUTPUT OF PORTFOLIO CONSTRUCTION MODELS
      4. HOW QUANTS CHOOSE A PORTFOLIO CONSTRUCTION MODEL
      5. SUMMARY
      6. NOTES
    5. Chapter 7: Execution
      1. ORDER EXECUTION ALGORITHMS
      2. TRADING INFRASTRUCTURE
      3. SUMMARY
      4. NOTES
    6. Chapter 8: Data
      1. THE IMPORTANCE OF DATA
      2. TYPES OF DATA
      3. SOURCES OF DATA
      4. CLEANING DATA
      5. STORING DATA
      6. SUMMARY
      7. NOTES
    7. Chapter 9: Research
      1. BLUEPRINT FOR RESEARCH: THE SCIENTIFIC METHOD
      2. IDEA GENERATION
      3. TESTING
      4. SUMMARY
      5. NOTE
  11. Part Three: A Practical Guide for Investors in Quantitative Strategies
    1. Chapter 10: Risks Inherent to Quant Strategies
      1. MODEL RISK
      2. REGIME CHANGE RISK
      3. EXOGENOUS SHOCK RISK
      4. CONTAGION, OR COMMON INVESTOR, RISK
      5. HOW QUANTS MONITOR RISK
      6. SUMMARY
      7. NOTES
    2. Chapter 11: Criticisms of Quant Trading
      1. TRADING IS AN ART, NOT A SCIENCE
      2. QUANTS CAUSE MORE MARKET VOLATILITY BY UNDERESTIMATING RISK
      3. QUANTS CANNOT HANDLE UNUSUAL EVENTS OR RAPID CHANGES IN MARKET CONDITIONS
      4. QUANTS ARE ALL THE SAME
      5. ONLY A FEW LARGE QUANTS CAN THRIVE IN THE LONG RUN
      6. QUANTS ARE GUILTY OF DATA MINING
      7. SUMMARY
      8. NOTES
    3. Chapter 12: Evaluating Quants and Quant Strategies
      1. GATHERING INFORMATION
      2. EVALUATING A QUANTITATIVE TRADING STRATEGY
      3. EVALUATING THE ACUMEN OF QUANTITATIVE TRADERS
      4. THE EDGE
      5. EVALUATING INTEGRITY
      6. HOW QUANTS FIT INTO A PORTFOLIO
      7. SUMMARY
      8. NOTE
  12. Part Four: High-Speed and High-Frequency Trading
    1. Chapter 13: An Introduction to High-Speed and High-Frequency Trading*
      1. NOTES
    2. Chapter 14: High-Speed Trading
      1. WHY SPEED MATTERS
      2. SOURCES OF LATENCY
      3. SUMMARY
      4. NOTES
    3. Chapter 15: High-Frequency Trading
      1. CONTRACTUAL MARKET MAKING
      2. NONCONTRACTUAL MARKET MAKING
      3. ARBITRAGE
      4. FAST ALPHA
      5. HFT RISK MANAGEMENT AND PORTFOLIO CONSTRUCTION
      6. SUMMARY
      7. NOTE
    4. Chapter 16: Controversy Regarding High-Frequency Trading
      1. DOES HFT CREATE UNFAIR COMPETITION?
      2. DOES HFT LEAD TO FRONT-RUNNING OR MARKET MANIPULATION?
      3. DOES HFT LEAD TO GREATER VOLATILITY OR STRUCTURAL INSTABILITY?
      4. DOES HFT LACK SOCIAL VALUE?
      5. REGULATORY CONSIDERATIONS
      6. SUMMARY
      7. NOTES
    5. Chapter 17: Looking to the Future of Quant Trading
  13. About the Author
  14. Index