Quality Money Management : Process Engineering and Best Practices for Systematic Trading and Investment

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Research Quantitative Methods

Research is the driving sector of the financial markets. Those who cannot reliably do market

research, in any of its forms, or evaluate the research of others will find themselves on the

sidelines in an industry that increasingly depends on innovations based on good data and

produced by sound research.^1 While Stages 1 and 2 of K|V can be thought of as an empiri-

cal research methodology, concerned with the process of research, they are together better

thought of as a process to manage ideas and combine innovations into working systems. This

step, K|V 1.2, addresses the process of research most specifically. Each encounter with the

previous step, K|V 1.1, should have defined a clear goal for the research step.

We recommend that, at the start of each loop through the research step, the prod-

uct team defines the problem by restating the research goal as a question. For example,

“ what is the best way to price options? ” This will help form well-defined boundaries for

research. In general:

● Define the research problem.

● Gather information and models.

● Fit the problem to the models.

● Select the model that best solves the problem.

CHAPTER ◆ 9

3

2

1

Research

quantitative

methods

Prototype

in modeling

software

Design and

document trading

strategy

Check

performance

Describe

trading idea

FIGURE 9-1