Stochastic Volatility Momentum Strategy (SVMS)

A quantitative trading strategy that combines the principles of the Heston stochastic volatility model with momentum indicators to generate buy/sell signals.

Overview

Financial markets often exhibit periods of low and high volatilities. The SVMS strategy aims to exploit these patterns by combining:

  • Heston Model: A stochastic volatility model that allows for a dynamic volatility path.
  • Momentum Indicators: Used to capture the momentum in the asset price, indicating potential buy/sell opportunities.

Models and Indicators

Heston Stochastic Volatility Model

The Heston model captures the dynamics of an asset's price and its volatility. The model uses two stochastic differential equations: one for the asset price and another for its variance.

Relative Strength Index (RSI)

RSI is a momentum oscillator that measures the speed and change of price movements. It oscillates between 0 and 100 and is typically used to identify overbought or oversold conditions.

Buy/Sell Signal Plot

SVMS Buy/Sell Signal Plot

Requirements

  • Python 3.x
  • NumPy
  • pandas
  • Matplotlib

How to Execute

  1. Ensure you have all the required libraries installed.
  2. Clone the repository or download the svms_strategy.py script.
  3. Execute the script:
python svms_strategy.py
  1. The script will generate a visualization of the stock price, volatility, and buy/sell signals.

Contributing

Pull requests are welcome. For major changes, please open an issue first to discuss what you would like to change.

License

MIT