Introduction to
Computational Finance II
Percy Lam
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QSTK
- QuantSoftware ToolKit
- Python based framework for
portfolio construction and management
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QSTK
Major components:
● Data: A data access package that enables
fast reading of historical data (qstkutil.
DataAccess).
● Processing tools: Uses pandas, a Python
package designed for time series evaluation
of equity data.
● Portfolio optimization: Using the CVXOPT
library.
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QSTK
●
Event studies: An efficient event analyzer,
Event_Profiler.
●
Simulation: A simple backtester, quicksim,
that includes transaction cost modeling.
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Portfolio Optimization
Modern Portfolio Theory (MPT)
● first introduced in 1952 by Harry Markowitz
● an important advance in math modeling of
finance
● maximize porfolio expected return for a
given amount of portfolio risk
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Porfolio Optimization
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Portfolio Optimization
Concept
● assets with higher expected return are riskier
● there exists a highest expected return for
each given amount risk
● diversification should generate higher
expected returns than individual assets