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Old 01-17-2010, 07:54 PM   #1
CMT1729
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Finance nerds, please enter this thread

Have any of you heard of using kernel regression for extracting alpha? If so do you have any examples? I feel that the typical method is too inaccurate for my needs.
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Old 01-17-2010, 08:22 PM   #2
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Have any of you heard of using kernel regression for extracting alpha? If so do you have any examples? I feel that the typical method is too inaccurate for my needs.
I don't know what Kernel regression is but I know some Linear regression
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Old 01-17-2010, 08:25 PM   #3
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Got a trading algorithm hooked up to a brokerage API ready to execute orders on your behalf there, chief?

If anyone in here knew exactly what you were talking about, they'd be working at Citadel, Goldman-Sachs, or any other proprietary-trading hedge fund and pulling down 6-7 figures.
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Old 01-17-2010, 08:31 PM   #4
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Got a trading algorithm hooked up to a brokerage API ready to execute orders on your behalf there, chief?

If anyone in here knew exactly what you were talking about, they'd be working at Citadel, Goldman-Sachs, or any other proprietary-trading hedge fund and pulling down 6-7 figures.
There are a handful of members here who I'd say could potentially know in the financial realm, but what's more is that there may be people with signal processing (electrical-engineering) backgrounds who could chime in.
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Old 01-17-2010, 08:32 PM   #5
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The math seems simple enough... not sure what it's used for exactly.
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Old 01-17-2010, 08:32 PM   #6
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i was typing some smart ass response to this thread and i hit a few keys by accident, now all the As on the screen are highlighted

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Old 01-17-2010, 08:39 PM   #7
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The math seems simple enough... not sure what it's used for exactly.
The math is easy enough, but applying it is the issue
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Old 01-17-2010, 08:42 PM   #8
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The math is easy enough, but applying it is the issue
lol...exactly.
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Old 01-18-2010, 02:46 AM   #9
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Got a trading algorithm hooked up to a brokerage API ready to execute orders on your behalf there, chief?

If anyone in here knew exactly what you were talking about, they'd be working at Citadel, Goldman-Sachs, or any other proprietary-trading hedge fund and pulling down 6-7 figures.
Prop trading firms are not hedge funds, and Investment Banks are most definitely NOT prop firms or hedge funds. Don't confuse the sell-side with the buy-side.
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Old 01-18-2010, 07:42 AM   #10
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OP, this isn't high finance.
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Old 01-18-2010, 07:52 AM   #11
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OP, this isn't high finance.
I love you R3GNman haha I can imagine you in a boardroom and just telling people there wrong haha
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Old 01-18-2010, 07:57 AM   #12
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Old 01-18-2010, 11:14 AM   #13
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I love you R3GNman haha I can imagine you in a boardroom and just telling people there wrong haha
lol
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Old 01-18-2010, 11:45 AM   #14
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Nerds on e46f? We fvck b1tches and acquire mass amounts of currency.
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Old 01-18-2010, 11:46 AM   #15
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Prop trading firms are not hedge funds, and Investment Banks are most definitely NOT prop firms or hedge funds. Don't confuse the sell-side with the buy-side.
You think places like Citadel and Goldman-Sachs don't have their own in-house proprietary trading algorithms? It doesn't matter whether you're an investment bank like Goldman-Sachs trying to profit from the buy/sell spread or a hedge fund like Citadel trying to turn a buck into a buck twenty. Both companies own hedge funds and both companies have their own proprietary trading algorithms.
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Old 01-18-2010, 11:49 AM   #16
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Old 01-18-2010, 02:09 PM   #17
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you think places like citadel and goldman-sachs don't have their own in-house proprietary trading algorithms? It doesn't matter whether you're an investment bank like goldman-sachs trying to profit from the buy/sell spread or a hedge fund like citadel trying to turn a buck into a buck twenty. Both companies own hedge funds and both companies have their own proprietary trading algorithms.
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Old 01-18-2010, 02:36 PM   #18
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You think places like Citadel and Goldman-Sachs don't have their own in-house proprietary trading algorithms? It doesn't matter whether you're an investment bank like Goldman-Sachs trying to profit from the buy/sell spread or a hedge fund like Citadel trying to turn a buck into a buck twenty. Both companies own hedge funds and both companies have their own proprietary trading algorithms.
Did I say that these firms didn't have prop trading subsidiaries? The answer is no, I did not, because having a damn prop trading sub is totally different than being "any other proprietary trading hedge fund," pal. As I said, a prop firm is not a hedge fund, so that was the first mistake. Hedge funds raise outside capital, mostly from institutional investors, therefore creating a limited partnership. They make their earnings from a 2-3% management fee on the committed capital from the LP's, then they earn 20% in carried interest on profits with 80% going to the LP's. This is contrary to the prop trading firm, which doesn't have a management entity nor a limited partnership entity, instead, they use the firms own capital for trading.

And I don't think you understand IBD either. GS makes most of its profits from advising corporate clients in M&A, either representing a buyer or seller, and then capturing a huge transaction fee upon the deal closing. Again, they do have a S&T division, but primarily, GS is the global leader corporate advisory services (M&A, debt or equity capital raising...etc).

And no, Citadel doesn't "own a hedge fund," it is a hedge fund. But as I said, even though GS has a hedge fund affiliate, the firm is not considered a hedge fund, much less a "prop trading hedge fund" lol, as that's an oxymoron, generally speaking.

And like I said guy, don't confuse the sell-side with the buy-side. IB = sell-side; HF/PE/VC/Prop/etc. = buy-side.
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Old 01-18-2010, 03:10 PM   #19
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You think places like Citadel and Goldman-Sachs don't have their own in-house proprietary trading algorithms? It doesn't matter whether you're an investment bank like Goldman-Sachs trying to profit from the buy/sell spread or a hedge fund like Citadel trying to turn a buck into a buck twenty. Both companies own hedge funds and both companies have their own proprietary trading algorithms.
Proprietary algorithm =! Proprietary trading, they're two different things.
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Old 01-18-2010, 03:59 PM   #20
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Did I say that these firms didn't have prop trading subsidiaries? The answer is no, I did not, because having a damn prop trading sub is totally different than being "any other proprietary trading hedge fund," pal. As I said, a prop firm is not a hedge fund, so that was the first mistake. Hedge funds raise outside capital, mostly from institutional investors, therefore creating a limited partnership. They make their earnings from a 2-3% management fee on the committed capital from the LP's, then they earn 20% in carried interest on profits with 80% going to the LP's. This is contrary to the prop trading firm, which doesn't have a management entity nor a limited partnership entity, instead, they use the firms own capital for trading.

And I don't think you understand IBD either. GS makes most of its profits from advising corporate clients in M&A, either representing a buyer or seller, and then capturing a huge transaction fee upon the deal closing. Again, they do have a S&T division, but primarily, GS is the global leader corporate advisory services (M&A, debt or equity capital raising...etc).

And no, Citadel doesn't "own a hedge fund," it is a hedge fund. But as I said, even though GS has a hedge fund affiliate, the firm is not considered a hedge fund, much less a "prop trading hedge fund" lol, as that's an oxymoron, generally speaking.
This isn't quite accurate. First Citadel. They are no longer just a hedge fund, and haven't been for 8 years. They're a diversified financial institution that consists of two subsidiaries, Citadel Asset Management (what you're thinking of), and Citadel Securities (investment banking services, S&T, etc.). So I think it's fair to say they own a hedge fund. Saying they are just a hedge fund is like saying Bain is just a management consulting firm (they also have a huge PE group, VC group, etc.).

You have the right idea on hedge funds, although I'll add you used a generic carry (80/20), and that can vary based on the fund. Also, hedge funds are just one form of "funds".

Finally, GS. You're way off here. I'm sitting here staring at their headquarters in lower Manhattan. From their Q3 earnings:

- Net Revenue from Investment Banking: $899 million, of which $325 million was from advisory services, and underwriting accounted for $574 million.

- Net Revenue from Trading was over $10 billion! Of that, FICC (Fixed Income, Currencies, and Commodities) accounted for $6 billion, and equities were $2.8 billion, and principal investments were $1.2 billion.

- Asset Management revenues were $974 million, and Securities Services were $472 million.

Your post focused just on advisory services, which represent only about 2.5% of Goldman's revenue. Yes, they are the leader in corporate advisory, but they generate a lot more money from.... their trading algorithms.
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