Monthly Archives: June 2011
Winsorization
Winsorization replaces extreme data values with less extreme values. But why Extreme values sometimes have a big effect on statistical operations. That effect is not necessarily a good effect. One approach to the problem is to change the statistical operation — this is the field of robust statistics. An alternative solution is to just change … Continue reading
Review of “Adapt” by Tim Harford
The subtitle is “Why success always starts with failure”. Executive summary Brilliant. Funny. Enlightening. Complexity We live in a complex world. Exhibit number 1 (page 1) is the Toaster Project. Our brains are too small to know what to do in a complex world. The rules of adapting The three rules of adapting (page 36) … Continue reading
Posted in Book review
2 Comments
Talking The R Journal latest release
Volume 3/1 of The R Journal has been released. It of course has articles about using R. In addition it has a feature that I highly support. In preparation for the UseR! Conference 2011 August 16-18 in Coventry there are two Help Desk articles on making a good technical presentation. Technical presentation Rob Hyndman writes … Continue reading
Highlights of the London Quant Group Technology Day
A summary of the high points of the day. Factor models and optimization Three of the talks formed a theme: factor models of variance — especially as applied to portfolio optimization. The basic problem is that variance matrices are created with error. A variance matrix is a key input to (some) portfolio optimizations. The optimizer … Continue reading
Performance ratios, bootstrapping and infinite variances
If returns had infinite variance, would there be a problem bootstrapping information ratios? Background There is a discussion on the Quant Finance group of LinkedIn with the title: “How do you measure the confidence intervals of performance ratios?” One suggestion was to use the statistical bootstrap. This resulted in a discussion of the efficacy of … Continue reading
Posted in Performance, R language
Tagged infinite variance, information ratio, qqplot, statistical bootstrap
3 Comments
Bubble anatomy
Here is a schematic of a financial bubble. This is taken from a post by The Reformed Broker. Questions The picture feels right to me, but … Is there any data to support it? What process could fit a model like this without assuming the answer? Related posts Review of “Boombustology” by Vikram Mansharamani Subscribe … Continue reading
Market arrows
Graphs like Figure 1 are reasonably common. But they are not reasonable. Figure 1: A (log) price series with an explicit guide line. Some have the prices on a logarithmic scale, which is an improvement on the raw prices. The problem with this sort of plot is that two particular data points are taken as … Continue reading
Posted in Fund management in general, R language
Leave a comment
Premortem stress tests
To look in the corners we want to avoid. David Rowe’s latest Risk column, “Stress testing culture”, concerns the difficulty of developing good stress scenarios. One of his particular concerns is that it is against our nature to consider the failure of something that we are working on. We are masters at dodging that. There … Continue reading
Thank you government
You probably thought the title was ironic. Why should that be? Mutual benefit Falkenblog has a post that includes: When the barista says ‘thank you’ for buying coffee, and I say ‘thank you’ back, we have a double thank you moment, symptomatic of positive gains from trade. In contrast, I don’t say ‘thank you’ when … Continue reading
Posted in Off topic
Leave a comment
Review of “Boombustology” by Vikram Mansharamani
How can we spot bubbles before they burst? Executive Summary I had high hopes for this book. The first 5 chapters lived up to my expectations. The remaining chapters, though interesting in spots, are a bit vapid. However, those first 5 chapters are worth the price of admission. Chapters The book starts with a discussion … Continue reading
Posted in Blog, Book review, Fund management in general
Tagged financial bubble, Minsky Instability Hypothesis
2 Comments
