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My theory is that they use Hidden Markov Models to figure out something subtle about the market -- probably regimes. I got this impressions from several of Sim
by omarhaneef 7y ago
My theory is that they use Hidden Markov Models to figure out something subtle about the market -- probably regimes.
I got this impressions from several of Simons interviews, and then the recent book has added more clues.
Note that the Baum-Welch algo is one of the leading algos used to solve the underlying model and Baum worked at Rentech.
- hogFeast 7y agoThere is a book that explains what Baum did (it wasn't this).
- omarhaneef 7y agoSay more. Do you mean "The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution" which I read, or another book?
- ilzmastr 7y agoYea I mean that book basically says that Baum wasn't interested in using his or any algorithm with trading. He just had hunches and a value system that he really believed in for what world events would do to currency prices. I think that part of the book is totally believable. Medallion didn't make a name for itself until long after Baum left.
- orbifold 7y agoThis is compatible in so far as you need to estimate parameters to calibrate any such strategy. In the simplified model that is explained in the lecture notes I linked to, you would start with eq. 6.6 on page 25 as an Ansatz for the transition matrix in the Baum-Welch algorithm.