Inside the Black Box (eBook)

Rishi K Narang is the Founding Principal of Telesis Capital LLC, which invests in quantitative trading strategies. Previously, he was managing director and coportfolio manager at Santa Barbara Alpha Strategies. Narang cofounded and was president of Tradeworx, Inc., a quantitative hedge fund manager, from 1999-2002. He has been involved in the hedge fund industry, with a focus on quantitative trading strategies, since 1996. Narang graduated from the University of California at Berkeley with a BA in economics.

Preface.

Acknowledgments.

Part One The Quant Universe.

Chapter 1 Why Does Quant Trading Matter?

The Benefit of Deep Thought.

The Measurement and Mismeasurement of Risk.

Disciplined Implementation.

Summary.

Chapter 2 An Introduction to Quantitative Trading.

What is a Quant?

What is the Typical Structure of a Quantitative Trading
System?

Summary.

Part Two Inside the Black Box.

Chapter 3 How Do Quants Make Money?

Answer: Alpha Models.

Types of Alpha Models: Theory-driven and Data-driven.

Theory-Driven Alpha Models.

Data-Driven Alpha Models.

Implementing the Strategies.

Blending Alpha Models.

Summary.

Chapter 4 Risk Models.

Limiting the Amount of Risk.

Limiting the Types of Risk.

Summary.

Chapter 5 Transaction Cost Models.

Defining Transaction Costs.

Types of Transaction Cost Models.

Summary.

Chapter 6 Portfolio Construction Models.

Rule-Based Portfolio Construction Models.

Portfolio Optimizers.

Output of Portfolio Construction Models.

How Quants Choose a Portfolio Construction Model.

Summary.

Chapter 7 Execution.

Order Execution Algorithms.

High Frequency Trading: Blurring the Line between Alpha and
Execution.

Trading Infrastructure.

Summary.

Chapter 8 Data.

The Importance of Data.

Types of Data.

Sources of Data..

Cleaning Data

Storing Data.

Summary.

Chapter 9 Research.

Blueprint for Research: The Scientific Method.

Idea Generation.

Testing.

Summary.

Part Three A Practical Guide for Investors in Quantitative
Strategies.

Chapter 10 Risks Inherent to Quant Strategies.

Model Risk.

Regime Change Risk.

Exogenous Shock Risk.

Contagion, or Common Investor, Risk.

How Quants Monitor Risk.

Summary.

Chapter 11 Criticisms of Quant Trading: Setting
the Record Straight.

Trading is an Art, Not a Science.

Quants Cause More Market Volatility by Underestimating Risk.

Quants Cannot Handle Unusual Events or Rapid Changes in Market
Conditions.

Quants are All the Same.

Only a Few Large Quants Can Thrive in the Long Run.

Quants are Guilty of Data Mining.

Summary.

Chapter 12 Evaluating Quants and Quant Strategies.

Gathering Information.

Evaluating a Quantitative Trading Strategy.

Evaluating the Acumen of Quantitative Traders.

The Edge.

Evaluating Integrity.

How Quants Fit into a Portfolio.

Summary.

Chapter 13 Looking to the Future of Quant Trading.

Notes.

About the Author.

Index.

?Excellent new book . . . demystif[ies] the world of quant
investing, and does so in a way that should be intelligible to any
thoughtful investor. . . admirably thorough . . . and highly
readable throughout. The book has a logical structure, which
gradually builds an ever more complete picture of what it is that
quants do, how they do it, and what the issues really are that
surround quant trading. Much more than a simple "beginner's guide"
to quants, and it really gets interesting in the final third, where
[the author] looks in some detail at the risks inherent in quant
approaches and the criticisms of quant trading?and how to evaluate
them. To find out more about how to evaluate quants, read this
book.?

?AR Magazine

In "Inside the Black Box," Rishi Narang makes the
impossible seem possible: he takes the vastly misunderstood role of
the quantitative trading strategy and makes it understandable to
those with only the most tenuous working knowledge of global
capital markets. How he does so is a sleight of hand no more
complicated than patient, consistently eloquent writing, and
easy-to-understand, basic examples."

?Markets Media Online

"The book, Inside the Black Box: The Simple Truth About
Quantitative Trading, by Rishi Narang, is hands down the best
introductory book I've read on the topic. Narang does a brilliant
job of explaining (in simple English), how and why quantitative
trading works. If you are looking for a primer on Quantitative
Trading I strongly endorse and recommend this book."

?TradingMarkets.com

"In a new book on quantitative trading strategies, entitled
"Inside the Black Box: The Simple Truth About Quantitative
Trading," Rishi Narang, founding principal of Telesis Capital,
seeks to explain with real-world examples and anecdotes what it is
exactly that quants do?The book focuses on a few major questions
that Narang says are important to understanding the quant world.
These include: what is a quant, what are the secrets of successful
quant trading, what caused the disasters in quant trading, what
role did quants play in the credit crisis, and what is the future
of quant trading?"

?Advanced Trading

"You may be skeptical that Rishi Narang will be able to deliver
on the ambitious promise of his book, Inside the Black Box: the
Simple Truth about Quantitative Trading (published by John
Wiley & Sons, 2009). But he does deliver. He tells you, in
language that can be understood by most educated people, what a
quantitative trading system is and what a quant does."

?hedgefundsmarts.blogspot.com