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Risk mgmt for short-term trading strategies (Read 4568 times)
bluelou
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Risk mgmt for short-term trading strategies
02/01/09 at 20:50:57
 
Can anyone point me toward any academic research or books on risk management/portfolio diversification/position sizing for short-term/high frequency trading strategies?

I'm running strategies on futures with average holding periods of 6 to 36 hours.  I haven't come up with a good way to diversify the instruments and strategies.  

FWIW, Here's what I'm biased toward using:
1) Simple linear constraints.
2) Vol-based and risk-of-ruin based criteria

Here's what I'm biased toward ruling out:
1) Using anything related to daily correlations doesn't seem to make much sense due to the short holding periods.  
2) I'm weary of anything VaR-based b/c I don't trust the distributions - no matter what the methodology.
3) I don't have much interest in using Kelly-based criteria - I don't have that level of confidence in prior probabilities in financial time series.  Regime switches happen far too often in this business.

Thanks in advance for your suggestions.
-BlueLou
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qroach
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Re: Risk mgmt for short-term trading strategies
Reply #1 - 02/02/09 at 13:31:36
 
My impression is that academic research is mostly concentrated around distributions and correlations, but you might be able to find something different.
I personally also like something more robust than distributions/corrs. For example, I liked the idea of PW's CrashMetrics, although it is not for short-term positions.
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