Rice Online: Data Driven Finance II
Spring 2023

Instructor

Kerry Back
J. Howard Creekmore Professor of Finance and Professor of Economics
kerryback@gmail.com

Class Meeting

TTh, 10:50-12:05
Room 217, McNair Hall

Course Description

We’ll cover three topics in this course: options, futures, and quantitative equity investing. Options and futures are important instruments for risk management and also for investing. We’ll explain what the securities are and how they trade, how they are used in risk management and investments, and how to value them. Quantitative equity investing is using quantifiable signals to select stocks via algorithms. We’ll explore machine learning methods to predict returns and classify stocks as Buy/Hold/Sell. We’ll backtest trading strategies based on the signals. And, we will analyze the results in the way that endowments and other institutions evaluate investment managers. We’ll do a real-world implementation of our algorithms using daily updated company financials and market data from a SQL database and with paper trading via the python API at Alpaca Brokerage.

Assignments and Grading

Grades will be based on a project and a final exam. They will be count equally towards the course grade. The project is about quantitative equity investing. The final exam will cover options and futures.

Tentative Schedule

  • Weeks 1-3: Factor investing
  • Week 4: Introduction to options
  • Week 5: Option valuation
  • Week 6: Introduction to futures
  • Week 7: Risk management examples

Project Description

The project requires conducting backtests of strategies and implementing a strategy on Alpaca. The strategy that is implemented should be a 150/50 strategy, meaning 150% long and 50% short. The strategy should be implemented on Alpaca no later than the opening of trading on …, and the analysis should include results through at least the close of trading on …. Each group should submit a pdf containing the following elements. It is due on ….

  • Descriptions of at least two strategies and their results in backtests.
  • An explanation of a choice of a particular strategy to implement.
  • A description of the trading process:
    • What were the target portfolio weights?
    • How frequently were trades made?
    • What were the criteria for trading out of positions?
    • What were the criteria for putting on new positions?
    • How often and to what extent were positions rebalanced to target weights?
  • An evaluation of the weekly returns of the Alpaca strategy.

Honor Code

The Rice University honor code applies to all work in this course. Each student must do his or her own assignments, but it is allowed and in fact encouraged for students to seek advice from each other.

Disability Accommodations

Any student with a documented disability requiring accommodations in this course is encouraged to contact me outside of class. All discussions will remain confidential. Any adjustments or accommodations regarding assignments or the final exam must be made in advance. Students with disabilities should also contact Disability Support Services in the Allen Center.