Monthly Archives: March 2011
The devil of overfitting
Overfitting is a problem when trying to predict financial returns. Perhaps you’ve heard that before. Some simple examples should clarify what overfitting is — and may surprise you. Polynomials Let’s suppose that the true expected return over a period of time is described by a polynomial. We can easily do this in R. The first … Continue reading
The book of doom
Markets can be disrupted in numerous ways. We should prepare as best we can. Gloom Here are some things that will happen some day: An epidemic threatens millions or billions of people. A solar storm cuts electricity to wide areas for weeks or months, and destroys satellites — including satnav (which have atomic clocks used … Continue reading
Which way is the future?
In the Aymara language the past is in front and the future is behind. It is rare for languages (at least existing ones) to have the metaphor turned this way. But it makes sense to me — maybe it’s the quant in me. We can see the past, and the most recent past is the … Continue reading
Posted in Fund management in general
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Factor models of variance in finance
In “What the hell is a variance matrix?” I talked about the basics of variance matrices and highlighted challenges for estimating them in finance. Here we look more deeply at the most popular estimation technique. Models for variance matrices The types of variance estimates that are used in finance can be classified as: Sample estimate … Continue reading
Posted in R language, Risk
Tagged covariance matrix, factor model, risk model, variance matrix
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Upcoming Events
2011 March 08, 8:00 AM, London EDHEC Risk Institute presents: Raman Uppal How to (or how not to) manage money New approaches for portfolio construction. Admission is free, but registration (soon) is required. More details in the brochure (pdf) 2011 March 08 6PM, London The LondonR meeting. Details at http://www.londonr.org/ 2011 March 09 6:30, New … Continue reading
