Foundational concepts
The practice of exploiting price differences in multiple markets for a risk-free profit
What is hedging?
A trading strategy that uses pre-programmed algorithms to execute trades based on timing, price, or other factors.
What is algorithmic trading?
A statistical method used to test if an assumption about a population parameter is true or false.
What is hypothesis testing?
Real-time and historical information on the prices and volumes of traded financial instruments.
What is market data?
Give 3 common derivatives ?
Common derivatives include options, futures, and swaps
A statistical method used to estimate potential losses in a portfolio over a specific time frame at a certain confidence level.
What is Value at Risk (VaR)?
A technique that uses random variables to model uncertainty in processes or systems.
What is stochastic modeling?
The process of analyzing textual data to understand attitudes, opinions, and emotions expressed online.
What is sentiment analysis?
This phenoma is based on Short-term fluctuations
Is speculation based on short-term or long-term fluctuations?
A simulation technique that evaluates how a portfolio would perform under extreme but plausible market scenarios
What is stress testing?
A statistical measure that evaluates the degree of relationship between two variables.
What is correlation?
The perceived or calculated value of a company based on fundamental analysis.
What is intrinsic value?
A price difference between two or more markets, striking a combination of matching deals that capitalize upon the imbalance, and profiting from the difference.
What do you compare in an arbitrage ?
A derivative agreement where two parties exchange cash flows or financial instruments based on a notional principal.
What is a swap?
A mathematical function that needs to be maximized or minimized in an optimization problem.
What is the objective function?
A valuation ratio comparing a company's current share price to its earnings per share.
What is the price-to-earnings (P/E) ratio?
A graph that shows the relationship between interest rates and bond maturities of the same credit quality
What is the yield curve?
A customized contract between two parties to buy or sell an asset at a predetermined price and date.
What is a forward contract?
A method that simulates random sampling to estimate probabilities of different outcomes in a complex process.
What is Monte Carlo simulation?
A statistical measure of how much the price of a security changes over time.
What is volatility?