Essential concepts for quant trading, research, and interviews — explained clearly.
40
Concepts
7
Categories
14 concepts
Probability questions are the cornerstone of quant trading interviews. This guide covers common question types, worked examples with solutions, and a study strategy to prepare effectively.
Brain teasers and logic puzzles are a staple of quant trading interviews. This guide covers why firms use them, common categories, worked examples with solutions, and practical solving strategies.
The Kelly criterion is a mathematical formula that determines the optimal fraction of capital to risk on a bet or trade, maximizing long-term geometric growth while managing the risk of ruin.
High-frequency trading uses ultra-fast technology and algorithms to execute large numbers of trades in fractions of a second, profiting from tiny price discrepancies and market microstructure.
Statistical arbitrage (stat arb) uses quantitative models to identify and exploit temporary pricing inefficiencies between related securities, typically holding diversified portfolios of long and short positions.
Pairs trading is a market-neutral strategy that simultaneously goes long one security and short a correlated one, profiting when the price spread between them reverts to its historical mean.
Mean reversion is the tendency of asset prices, returns, or other financial metrics to move back toward their long-term average after deviating significantly, forming the basis for many systematic trading strategies.
The Options Greeks (delta, gamma, theta, vega, rho) measure the sensitivity of an option's price to changes in underlying price, time, volatility, and interest rates.
Implied volatility is the market's forecast of future price volatility, derived by reverse-engineering the Black-Scholes model from observed option prices.
Value at Risk (VaR) estimates the maximum expected loss of a portfolio over a specified time period at a given confidence level, serving as a standard risk measure across the financial industry.
Monte Carlo simulation uses repeated random sampling to model the probability of different outcomes in complex systems, making it essential for derivatives pricing, risk analysis, and strategy evaluation.
Put-call parity is a fundamental relationship linking the prices of European call and put options with the same strike price and expiration, ensuring no-arbitrage pricing in options markets.
A Markov chain is a stochastic process where the probability of transitioning to the next state depends only on the current state, not on the history — the 'memoryless' property.
Factor investing is a systematic investment approach that targets specific characteristics (factors) — such as value, momentum, size, and quality — believed to drive returns across asset classes.
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