Blog Archives

Detecting bubbles in real time

April 14, 2014
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Recently, we hear a lot about a housing bubble forming in UK. Would be great if we would have a formal test for identifying a bubble evolving in real time, I am not familiar with any such test. However, we … Continue reading → Related posts: Volatility forecast evaluation in R In portfolio...

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Using R to model the classic 60/40 investing rule

April 9, 2014
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Using R to model the classic 60/40 investing rule

Image by Timothy Poulton   A long-standing paradigm among savers and investors is to favor a mixture of 40% bonds and 60% equities. The simple rationale is that stocks will provide greater returns while bonds will serve as a diversifier when if equities fall. If you are saving for your pension, you probably heard this

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R vs Matlab (round 1)

January 27, 2014
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Matlab has it this time, with solid 3D plotting capabilities. Here is a figure of the Oil short end (until 12 months) term structure: This was generated very easily via: ?View Code MATLAB% I assume you have CO, the matrix … Continue reading → Related posts: piecewise regression A beta of a stock generally means its...

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Comments on Comments in R

December 6, 2013
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When you are busy with a lengthy project, like writing a paper, you create many objects along the way. Every time you log into the project, you need to remember what is what. In the past, each new working session … Continue reading → Related posts: R and Dropbox When you woRk, you probably have...

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Comment on Comments in R

December 1, 2013
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When you are busy with a lengthy project, like writing a paper, you create many objects along the way. Every time you log into the project, you need to remember what is what. In the past, each new working session … Continue reading → Related posts: R and Dropbox When you woRk, you probably have...

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On p-value

February 2, 2013
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Albert Schweitzer said: “Example is not the main thing in influencing others. It is the only thing.”, so I start with it. Generate two random samples from Normal distribution. Test the hypothesis number one: , do not reject, then test … Continue reading → No related posts.

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On Volatility Proxy

October 23, 2012
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Volatility is unobserved. Hence we need to use observed quantity as a proxy. Every once in a while I still see people using squared daily return as a proxy. However, there is ample evidence that it is a bad one. … Continue reading → Related posts: Intra-day Volatility Pattern When we speak about volatility we...

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Forecasting the Misery Index, follow-up

October 7, 2012
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Five months ago I generated forecasts for the Eurozone Misery index. I used the built-in “FitAR” package in R. Using different models differing in their memory length (how many lags were considered for each model) 24 months ahead forecasts were … Continue reading → Related posts: Forecasting the Eurozone Misery index Is Miss...

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Volatility forecast evaluation in R

September 24, 2012
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In portfolio management, risk management and derivative pricing, volatility plays an important role. So important in fact that you can find more volatility models than you can handle (Wikipedia link). What follows is to check how well each model performs, … Continue reading → Related posts: Intraday volatility measures In the last few decades there...

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A shrinkage estimator for beta

August 28, 2012
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In the post pairs trading issues one of the problems raised was the unstable estimates of the stock’s beta with respect to the market. Here is a suggestion for a possible solution, which is not really a solution but more … Continue reading → Related posts: OLS beta VS. Robust beta In financial...

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