Tag Archives: Ledoit-Wolf shrinkage
Specific differences between Ledoit-Wolf and factor models
What can we learn about the difference in structure between a Ledoit-Wolf variance matrix and a corresponding factor model variance? Previously We’ve generated a set of random portfolios with constraints on the risk fractions of a Ledoit-Wolf variance matrix, and a corresponding set of random portfolios with risk fraction constraints from a statistical factor model. … Continue reading
Posted in Quant finance, R language
Tagged correlations, covariance matrix, Ledoit-Wolf shrinkage, risk fraction, variance matrix
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Again with Ledoit-Wolf and factor models
We come closer to a definitive answer on the relative merit of Ledoit-Wolf shrinkage versus a statistical factor model for variance matrices. Previously This post builds on the post entitled: A test of Ledoit-Wolf versus a factor model That post depended on some posts previous to it. New information Previously we generated random portfolios with … Continue reading
Posted in Quant finance, R language
Tagged covariance matrix, factor model, Ledoit-Wolf shrinkage, risk fraction, S&P 500, variance matrix
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A test of Ledoit-Wolf versus a factor model
Statistical factor models and Ledoit-Wolf shrinkage are competing methods for estimating variance matrices of returns. So which is better? This adds a data point for answering that question. Previously There are past blog posts on: the idea of variance matrices factor models of variance The data in this post are from the blog posts: “Weight … Continue reading
Posted in Quant finance, R language
Tagged covariance matrix, factor model, Ledoit-Wolf shrinkage, risk fraction, S&P 500, variance matrix
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