Alternative and common approaches in the construction of TC - page 10
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The request still stands. We await the topicstarter's persuasive examples.
Read on.
P.S. As an illustration, you can see what liberties Morgan Stanley takes.
I remember I once tried something similar to this.
But the instruments were chosen a little differently:
CL(LightSweet) - BRN(Brent) - 6C(Canadian) - USDNOK (reverse drawing)
I was planning to implement "arbitrage-statistical" inputs relative to the midline. But I have not managed to do it exactly. Got carried away with short-term currency spreads.
Read.
P.S. As an illustration, you can see what liberties Morgan Stanley allows itself.
Let me respond with a quote from your similar thread:
The mathematical method doesn't care what the nature of the original BPs are. If it is SB (random walks), then Recycle will still find dependencies on the final window. Although of course there are no dependencies as SB is pure martingale. That would be pulling the graph under the formulas.
Q: I have this question for you: is it possible to create a synthetic that is constantly in a channel larger than the sum of the spreads(asc-bid) of the instruments included in this synthetic?
A: Anything can be created on history.
And where is the guarantee that the synthetics and weights created won't be a fit for the chart we so need?
There is no guarantee. If these equity are random wanderings, i.e. independent at all, then it will be the purest fit.
The facts are. A synthetic instrument has to make some kind of economic sense (the sum of all pairs is what? and if I add up the prices of 40,000 instruments?)
And the facts lie in the most prominent places. Instead of thinking it's better to take it for granted, eh, sanyooooooook?
So the only thing left is to bring economic facts to prove that your synthetic is indeed a new instrument with unique characteristics and not another fitting on history with the help of sophisticated "mathematical methods". Yes, you understand it yourself and repeatedly spoke about it, but the public hasn't heard from you specific theses or examples of how to create "correct" synthetics (sorry for my desire to get food for thought in a finely chopped form).
Read this post. If it seems nonsense to anyone, feel free to talk about it. Your right. I will only respond to constructive criticism.
I mostly post on the mql5 forum, but after seeing your active presence on this forum I decided to register too.
More not in terms of criticism, but in terms of the problems that can arise when creating a synthetic - the need to constantly rebalance the portfolio. Let's look at an example - a simple EURUSD, GBPUSD, EURGBP arbitrage ring. To create a simple synthetic that will oscillate around one value, you need to sell 1.18 lot of EURUSD, buy 1.18 lot of EURGBP and sell 1 lot of GBPUSD. Then, in order to maintain 100% hedging you have to constantly sell/buy. Thus, the constant rebalancing of the portfolio will incur significant transaction costs.
Creating synthetics is an interesting topic, but more for hedge funds, prop. desks due to low commissions, direct access to LPs and proprietary IT platform
What about trying to create synthetics on different principles? I, for one, like the other option: synthetics should deviate as much as possible from the average, not as little as for arbitrage.
And you can play trend games.What about trying to create synthetics on different principles? I, for one, like the other option: synthetics should deviate as much as possible from the average, not as little as for arbitrage.
And you can play trend games.What about trying to create synthetics on different principles? I, for one, like the other option: the synthetic should deviate as much as possible from the average, not as little as for arbitrage.
And you can play trend games.Exactly right.
Killed a lot of time to build a pair trading based on cointegration. Everything is great. 100% back to synthetic. But. Deviations from synthetic are comparable to the spread. Couldn't find pairs that were cointegrated but diverged a lot. At least 20 pips apart.