Question for quant/algo people. I believe human traders must develop a view of the market, then seek out the best implementation strategy to express it. Do any machine strategies do this, or do they tend to operate/evaluate starting directly at the instrument/product level?
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Would I be correct in assuming that a top-down implementation is a much more complicated and involved undertaking?
I don’t think it’s any more or less complicated. In top down, you can easily figure out your gross portfolio exposures (eg how much equity beta, how much dv01 etc) and the hard part is selecting securities to give you that exposure. In bottom down, selecting securities is …
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straightforward but you also need to respect your portfolio risk constraints, generally your positions can’t be treated as independent of each other, and that’s where it gets complicated.
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If you took a pure bottom up approach and just used whatever gross exposures came out of the security selection, then yes bottom-up would be easier. But I wouldn’t recommend doing that.
End of conversation
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