Category Archives: Blog
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
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
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
Alpha alignment
An explanation of alpha factor alignment in portfolio optimization, and a look at the spectrum of views on it. Venue FactSet recently hosted an event that included a panel of representatives from several risk model vendors. The first question thrown at the panel was about alpha alignment. The opinions varied widely. There was positive correlation … Continue reading
Posted in optimization, Quant finance
Tagged alpha alignment, alpha eating, factor alignment
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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
Dunderhead, part 2
The email system still wasn’t quite right last time. It should be better now. If so, then the email gang will see this post and will be given the opportunity to read some things they missed.
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Blog-via-email system revised
The new system of sending blog posts via email should go live today. Actually it should have gone live yesterday, but I’m a dunderhead. That it didn’t go live yesterday means that members of the email gang may have missed: “Random portfolios versus Monte Carlo”. If you want to receive the blog via email: a … Continue reading
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Random portfolios versus Monte Carlo
What is the difference between Monte Carlo — as it is usually defined in finance — and random portfolios? The meaning of “Monte Carlo” The idea of “Monte Carlo” is very simple. It is a fancy word for “simulation”. As usual, it is all too possible to find incredibly muddied explanations of such a simple … Continue reading
Posted in R language, Random portfolios
Tagged Monte Carlo in finance, personal pension planning
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Normal service resumed?
After a few weeks of feed problems with the blog, we are hoping that everything is sorted. In the next few days a choice to receive the blog via email should appear wherever you can sign up to the newsletters. You should not sign up via Feedburner. If you have already been receiving the blog … Continue reading
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