FE571 Quantitative Hedge Fund Strategies

Course Catalog Description


Hedge funds are among the most influential participants in the financial markets with unique features. They are subject to less regulation and their strategies vary significantly from one another. Examples of common strategies include discretionary investing, quantitative equity investing, global macro, managed futures and exploitation of arbitrage opportunities. This course provides an introduction to different hedge fund strategies on their economic intuition and implementation along with practical considerations. It also discusses various examples of how financial engineering toolsets are utilized to enhance hedge fund performance. In addition, this course emphasizes on the practical techniques of building a quantitative trading system using R programming language. Topics such as the lifecycle of developing a sound trading strategy and strategy validation in the form of back-testing are introduced.

Campus Fall Spring Summer
On Campus X X
Web Campus X X


Professor Email Office
Dr. Sheung Yin Kevin Mo
smo@stevens.edu By Appointment (Email)

More Information

Course Outcomes

This course aims to introduce students to different hedge fund strategies and their relevance to financial engineering. It also helps students in understanding the technical requirements of developing a quantitative trading system. This course is designed for graduate students in the Financial Engineering program at the School of Systems and Enterprises.

After taking this course, the student will be able to:

  1. Learn about the theoretical and practical features of different hedge fund strategies.
  2. Understand the structural organization of hedge funds and their emphasis on risk and portfolio management.
  3. Leverage financial engineering techniques to enhance hedge fund performance.
  4. Survey existing technical platforms such as R and C++ to develop a trading system.
  5. Foster experience in building quantitative trading system and participating in the investment competition at the end of the course.

Course Resources


  • [Required:] Lasse H. Pedersen, Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined, Princeton University Press (2015).
  • [Required:] Jack D. Schwager, Hedge Fund Market Wizards, Wiley Finance Series (2012).
  • [Optional:] Filippo Stefanini, Investment Strategies of Hedge Funds, Wiley Finance Series (2006).
  • [Optional:] Andrew W. Lo, Hedge Funds: An Analytic Perspective, Princeton University Press (2008).


Grading Policies

Class Participation: 10%: Regular attendance and active participation will be a portion of the course grade assessment.

  • News Topic Presentation (5%): Students are highly encouraged to subscribe to the Wall Street Journal. Students are expected to lead an informal discussion on a major financial news story or a topic related to the hedge fund industry.
  • Course Reading Report (5%): The required reading, Hedge Fund Market Wizards, is written by Jack D. Schwager. Students are expected to read the book in its entirety and write a 2-page summary report.

Homework: 20%: Collaboration on homework is permitted but you must write up your own findings. 15% of the assignment grade will be deducted for late submission (up to three days).

Midterm Exam: 30 %: There will be one examination covering the core materials of the course. The exam is closed-book and must be completed independently. Students are not allowed to work or discuss with other students during the exam. The use of calculator is permitted.

Investment Competition: 40%: This course features a semester-long project that requires students to design and implement trading strategies based on course materials and discussion. Team shall be no more than 3 students per group. At the end of the course, there will be an investment competition with specific financial objectives that the project work will be tested and evaluated under real trading environments. The course project constitutes 40% of the course grade, which is further assessed based on the delivery of the strategy presentation (20%), and performance in the investment competition (20%).

Lecture Outline

Topic Reading
Week 1 Course Introduction; An Overview of Financial Markets
Week 2 An Overview of Hedge Fund Strategies
Hedge Fund in the U.S. Markets, Practical Applications of Financial Engineering for Hedge Funds Arbitrage and Other Strategies: Fixed Income Arbitrage, Convertible Bond Arbitrage, Merger Arbitrage, Global Macro, Managed Futures, Event Driven Strategies.
Week 3 Active Investment
Hedge Fund Operations and Structures, Classification of Hedge Fund Strategies, Backtest of Trading Strategy.
Week 4 Active Investment
Portfolio Construction, Risk Management, Factor Modeling, Predictive Regression.
HW #1
Week 5 Equity Trading Strategies
Discretionary Investment, Dedicated Short Bias Investment, Quantitative Equity Investing Long-Short Strategies
Week 6 Equity Trading Strategies
Portfolio Optimization
HW #2
Week 7 Hedge Fund Practical Implementation
Hedge Fund Returns, Hedge Fund Performance Analysis An Integrated Hedge Fund Investment Process, Practical Considerations, August 2007 Crisis for Quants.
Week 8 Midterm Exams
Week 9 Quantitative Trading Platform Development
Programming Platforms for Trading System Development and Implementation Creation and Evaluation of Trading Strategy, Optimization of Parameters and Filtering Entry Signals, Strategy Implementation. Investment Competition Overview and Tutorial – Idea Generation and Development.
HW #3
Week 10 Guest Lecture: TBA
Week 11 Quantitative Trading Practical Implementation
Liquidity Risk, Order Routing, Transaction Cost, System Validation for Order Submission Investment Competition Tutorial – Order Submission and Performance Metrics.
Week 12 Simulated Investment Competition
Week 13 Investment Competition Investment Competition
Week 14 Project Presentation – Economic Intuition, Methodology, Backtest Results and Expected Outcomes Strategy Presentation; Reading Report