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AK98


Total Posts: 3
Joined: Dec 2019
 
Posted: 2019-12-04 10:49
Hello,


I'm a master student pursuing a double degree program in Financial Economics / Applied mathematics and to get my diploma i should write a Research paper. 3 subjects has been proposed to me :

-Statistical arbitrage and pairs trading
-Factor selection in Finance
-Comparing discretization schemes in one-dimensional partial diō¸°„erential equations for option pricing


Hence i wanted to ask which subject is more interesting and useful to my career knowing that i want to break into trading (not specifically HF trading) ?


Azx


Total Posts: 40
Joined: Sep 2009
 
Posted: 2019-12-04 11:23
All three were only relevant decades ago and have been done to death already. Why not try to do something more original if trading is really the career you want to pursue?

doomanx


Total Posts: 35
Joined: Jul 2018
 
Posted: 2019-12-04 11:31
@Azx while you might be right that these are common, doing a master project on the subject is a good way to learn the topic. There's also room to do something crazy even if it doesn't work/might not be a good idea, and the experience getting hands on with some data will be valuable.

The pairs and factor analysis topics link together quite nicely. Have a look at the Avellaneda Statistical Arbitrage paper to get an idea of how these two things link together. You have freedom to do something a bit wild for a Masters project, so how about you try to find factors using some cool new dimensionality reduction method. This could be a PCA variant (one of the many flavours of sparse/robust), a VAE, ICA (some trendy papers in nonlinear ICA going round at the moment).

AK98


Total Posts: 3
Joined: Dec 2019
 
Posted: 2019-12-04 11:58
@Azx Thank you for your reply, Actually because i'm in a special program i have to do 2 projects, Hence the professor suggested that i do a research paper on a subject of a normal difficulty so i could learn about it more as @doomanx said, then i'll be working on a serious "wild" project that will be the main master thesis.
Anyway thank you for your reply and please if you have any suggestion for a more serious relevant subject that i can do either for the project or the thesis i will be more than thankful if you share it with us ? Thank you very much.

AK98


Total Posts: 3
Joined: Dec 2019
 
Posted: 2019-12-04 12:01
@doomanx Thank you very much for the tips i'll be looking at the paper then i'll try to see if it suits the professor in charge.

doomanx


Total Posts: 35
Joined: Jul 2018
 
Posted: 2019-12-04 12:20
@AK98 I mean the topic is still extremely relevant (statistical arbitrage is one of the most common quant strategies) so to that end it's honestly not a bad project. The specific arb presented in that paper will be hard to pull off as it's probably priced in now, but the idea of finding a relationship that holds statistically and betting on deviations from the normal is something fundamental.

If you get interested in the dimensionality reduction topic you could take a look into the more 'cutting edge' methods like Diffusion Maps, maybe through the lens of multivariate time series.
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