Blog Archives

Thalesians, and other events

September 5, 2012
By
Thalesians, and other events

Featured Thalesians, London 2012 September 12. Chia Tan on “Practical Financial Modeling”. Abstract: Financial modelling is not a competition in the mastery of complexity. Rather, the aim is to come up with the simplest models adequate to capture salient market features of traded products. There exists a wide gulf between material covered by traditional books … Continue reading...

Read more »

A look at Bayesian statistics

September 3, 2012
By
A look at Bayesian statistics

An introduction to Bayesian analysis and why you might care. Fight club The subject of statistics is about how to learn.  Given that it is about the unknown, it shouldn’t be surprising that there are deep differences of opinion on how to go about doing it (in spite of the stereotype that statisticians are accountants … Continue reading...

Read more »

garch and long tails

August 27, 2012
By
garch and long tails

How much does garch shorten long tails? Previously Pertinent blog posts include: “A practical introduction to garch modeling” “The distribution of financial returns made simple” “Predictability of kurtosis and skewness in S&P constituents” Induced tails Part of the reason that the distributions of returns have long tails is because of volatility clustering.  It’s not really … Continue reading...

Read more »

Another comparison of heuristic optimizers

August 20, 2012
By
Another comparison of heuristic optimizers

A herd of heuristic algorithms is compared using a portfolio optimization. Previously “A comparison of some heuristic optimization methods” used two simple and tiny portfolio optimization problems to compare a number of optimization functions in the R language. This post expands upon that by using a portfolio optimization problem that is of a realistic size … Continue reading...

Read more »

Highlights of R in Finance 2012

August 13, 2012
By
Highlights of R in Finance 2012

I unfortunately was not there, but we can vicariously enjoy it via the presentations that are posted on the conference website. Below is my take on the highlights (in chronological order). Peter Carl and Brian Peterson “Constructing Strategic Hedge Fund Portfolios” is wonderful from my perspective.  Promoting random portfolios is sure to win my heart.  … Continue reading...

Read more »

Returns with negative net asset values

July 30, 2012
By
Returns with negative net asset values

How are returns calculated when net asset value goes negative? Previously In “A tale of two returns” we highlighted the similarities and differences of log returns versus simple returns. Positive valuation We create — in R — an example of net asset value at four times: > nav1 <- c(1000, 900, 950, 1010) > nav1 … Continue reading...

Read more »

R Inferno-ism: order is not rank

July 26, 2012
By
R Inferno-ism: order is not rank

Do not use order when you want rank. Background The update of “A comparison of some heuristic optimization methods” is due to the bug that Luca Scrucca spotted. Actually, it is two bugs: I used order when I meant rank This somehow escaped being in The R Inferno   Problem What I said in my … Continue reading...

Read more »

A comparison of some heuristic optimization methods

July 23, 2012
By
A comparison of some heuristic optimization methods

A simple portfolio optimization problem is used to look at several R functions that use randomness in various ways to do optimization. Orientation Some optimization problems are really hard. In these cases sometimes the best approach is to use randomness to get an approximate answer. Once you decide to go down this route, you need … Continue reading...

Read more »

2 dimensions of portfolio diversity

July 16, 2012
By
2 dimensions of portfolio diversity

Portfolio diversity is a balancing act. Previously The post “Portfolio diversity” talked about the role of the correlation between assets and the portfolio.  The current post fills a hole in that post. The 2 dimensions asset-portfolio correlation Each asset in the universe has a correlation with the portfolio.  If there are any assets that have … Continue reading...

Read more »

A practical introduction to garch modeling

July 6, 2012
By
A practical introduction to garch modeling

We look at volatility clustering, and some aspects of modeling it with a univariate GARCH(1,1) model. Volatility clustering Volatility clustering — the phenomenon of there being periods of relative calm and periods of high volatility — is a seemingly universal attribute of market data.  There is no universally accepted explanation of it. GARCH (Generalized AutoRegressive … Continue reading...

Read more »