Publications by Pat
Not fooled by randomness
The paper is “Not Fooled by Randomness: Using Random Portfolios to Analyze Investment Funds” by Roberto Stein. Here is an explanation of the idea of random portfolios. Favorite sentence The real question here is whether we’re actually measuring skill, or these are still measures of performance, so influenced by extraneous factors that the...
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Review of “Numerical Methods and Optimization in Finance” by Gilli, Maringer and Schumann
Previously This book and the associated R package were introduced before. Executive Summary A very nice — and enlightening — discussion of a wide range of topics. Principles The Introduction to the book sets out 5 principles. This is probably the most important part of the book. The principles are: We don’t know much in finance. Don’...
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Variability of garch estimates
Not exactly pin-point accuracy. Previously Two related posts are: A practical introduction to garch modeling garch and long tails Experiment 1000 simulated return series were generated. The garch(1,1) parameters were alpha=.07, beta=.925, omega=.01. The asymptotic variance for this model is 2. The half-life is about 138 days. The simulate...
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garch estimation on impossibly long series
The variability of garch estimates when the series has 100,000 returns. Experiment The post “Variability of garch estimates” showed estimates of 1000 series that were each 2000 observations long. Here we do the same thing except that the series each have 100,000 observations. That would be four centuries of daily data. It’s not presentl...
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Variance targeting in garch estimation
What is variance targeting in garch estimation? And what is its effect? Previously Related posts are: A practical introduction to garch modeling Variability of garch estimates garch estimation on impossibly long series The last two of these show the variability of garch estimates on simulated series where we know the right answer. In respon...
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Two particular courses and other upcoming events
Featured I’ll be leading two courses in the near future: Value-at-Risk versus Expected Shortfall 2012 October 30-31, London. 30th: “Addressing the critical challenges and issues raised by the Basel proposal to replace VaR with Expected Shortfall” 31st: “Variability in Value-at-Risk and Expected Shortfall” led by Patrick Burns Details at...
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How to add a benchmark to a variance matrix
There is a good way and a bad way to add a benchmark to a variance matrix that will be used for optimization and similar operations. Our examination sheds a little light on the process of variance matrix estimation in this realm. Role of benchmarks Investing Benchmarks are common in investment management. It’s my opinion that they should no...
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S&P 500 correlations up to date
I haven’t heard much about correlation lately. I was curious about what it’s been doing. Data The dataset is daily log returns on 464 large cap US stocks from the start of 2006 to 2012 October 5. The sector data were taken from Wikipedia. The correlation calculated here is the mean correlation of stocks among themselves. This is lower tha...
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S&P 500 sector strengths
Which sectors are coherent, and which aren’t? Previously The post “S&P 500 correlations up to date” looked at rolling mean correlations among stocks. In particular it looked at rolling mean correlations of stocks within sectors. Of importance to this post is that the sectors used are taken from Wikipedia. Relative correlations The thought...
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Annotations for “R For Dummies”
Here are detailed comments on the book. Elsewhere there is a review of the book. How to read R For Dummies In order to learn R you need to do something with it. After you have read a little of the book, find something to do. Mix reading and doing your project. You cannot win if you do not play. Two complementary documents They are also comp...
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