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# Questions tagged [finance]

The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

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38 views

### Unit root test with a dummy for an event

I'm currently working with financial time series that experience a crash towards the middle of the series. These series are returns. From the graph, these series clearly look stationary. However, due ...
40 views

### Sample from aggregate portfolio distribution versus individual asset distributions

Suppose I have three assets $x_1,x_2,x_3$ in a portfolio with weights $W=\begin{bmatrix} w_1 \\ w_2 \\ w_3 \end{bmatrix}$, expected returns $R=\begin{bmatrix} \mu_1 \\ \mu_2 \\ \mu_3 \end{bmatrix}$, ...
126 views

### Test for confounding variable S&P 500 Python

I'm looking into a possible topic for a school project currently. It involves looking at the S&P 500 in comparison to other indices globally (e.g., Nikkei, DAX, etc.). I currently have plotted 19 ...
155 views

### Lag between forecast and actual value without lagged dependent variable as features

I'm trying to predict a time series using a model-tree (Cubist) and I'm getting a strange behavior, I think. This is a stock market data but I'm not using the raw level of the stock price but change ...
161 views

### Noise in ARIMA Model In-Sample Predictions

I am working on fitting some financial data into an ARIMA model to give me a forecast of the next time period. I am using pyramid's auto_arima function to get a ...
26 views

### How to measure statistical significance of a non-binary-position trading strategy for an irregular time series?

What are the different ways to identify/measure whether a trade strategy is statistically significant? Specifically I have an irregular time series of individual trades between: other buyers and ...
111 views

### Algorithm to find the attributes that comprise the greatest concentration

I have a porfolio of mortgage loans where each loan has a number of attributes attr1, attr2, .., attrN. I would like to analyze the portfolio credit risk concentration (see below) using these ...
343 views

### How to minimize sharpe ratio with LSTM recurrent neural network?

I've read some articles about trading using recurrent reinforcement learning such as this one. The point where I do not fully understand is how to construct the cost/loss function. In the article, ...
13 views

### Testing for difference in means for utility of wealth

Assume you have 2 different investment strategies, A and B. You simulate how A and B perform on the same $N$ time series of returns and compute the resulting utility of wealth. $N$ is large, say ...
55 views

### Machine learning techniques to evaluate hedge funds

I have a data set which consists of > 500 hedge funds, their historical monthly returns, and their benchmark (index) monthly returns. The number of data points (# of monthly returns) differs from a ...
34 views

### Measuring correlation between random variables when they are not normally distributed?

I want to perform some analysis on portfolio that consists of stocks. In particular, I want to know the relationship between the stocks during the downmarket. The problem complicating this analysis ...
127 views

### Is Reinforcement Learning suitable for optimal control problems in which actions influence rewards but not states?

In particular, rewards $r = f(s, a, s')$, but states are independent of actions $s' = g(s)$. A example could be asset trading that actions (long, short, hold) of a small trader won't affect market ...
131 views

### ARMA-GARCH model with t-distributed errors

I've estimated an ARMA(1,2)-GARCH(1,1) model fitted on financial data. It is very satisfactory in modeling the autocorrelation and the volatility in my data, however, the qq-plot empirical quantiles ...
218 views

### Machine Learning on Extremely Low Signal Data

I have terabytes of data with an extremely low signal to noise ratio, with the following characteristics: The relationship between the features and the response variable can change over time I'm ...
74 views

### Parameters in Autoregressive representation of an ARCH model

Suppose we have a $0$ mean time serie representing stock index returns about a title, $r$. I also know it follows an $ARCH(p)$ model with parameters $\omega$ and $\alpha$, specified in the following ...
25 views

### What are good ways to visualize budget/financial controlling data?

What are useful visualizations of budget/forecast vs actual spending data, i.e. data consisting of hierarchically structured sums compared at various (2-4) points in time? The aim would be to make ...
138 views

### Impact of window size on estimated volatility using SMA or EWMA

When calculating volatility (either using an SMA or EWMA approach), what impact does the window size have on the volatility estimate?
39 views

### Linear regression in R: testing statistical significance with t-tests

I am trying to test the statistical significance of the alphas in my trading strategy. However, I do not understand the difference between the alphas generated in R. To test the statistical ...
36 views

### Constrained optimization - quantitative finance

I am trying to perform constrained opmitization for portfolio performance attribution analysis. Specifically, I am trying to determine the impact of sectors performance on the S&P 500 index. Min ...
33 views

### Computing expected loss

I have three options like $A_{1}\leq A_{2}\leq A_{3}$. If I choose the higher value $A_{3}$ , I have more risk to loose. Let me make it clear , if I choose first the expected loss will be 1 , for the ...
54 views

### Why financial time series have perfect multicollinearity?

I have daily financial time series of stock returns (35 stocks) which I took the natural logarithm and subtracted the risk-free rate. However, I get the issue non-invertibility of the covariance ...
54 views

### Trying to run a regression on three variables that impact equity returns

I have three variables a,b and c, which impact equity returns, y. a is based on financial statements, so it is a quarterly figure. b and c are calculated daily, and so are daily (only on trading ...
194 views

### Nonlinear regressor in GLM link function

Try to reproduce Robert E. McCulloch and Ruey S. Tsay’s paper Nonlinearity in High-Frequency Financial Data and Hierarchical Models with local market data. the paper uses GLM to model high-frequency ...
169 views

### EWMA using Monte-Carlo simulation

Im trying to forecast volatility using an EWMA model in python. Where i have return(t-1) and variance(t-1). n is number of days. for every Monte-carlo simulation N: t=1: Forecast the variance using: ...
33 views

### Need handy formula for $\text{Cov}[\max(V_1-K_1,0), \max(V_2-K_2, 0)]$

In a recent post, I asked for help deriving a computable formula for $\text{Var}[\max(V-K,0)]$ based on the approach on p. 262 of ths book. $V$ is a lognormally distributed random variable and $K$ is ...
21 views

### What machine learning methods for estimating return, risk contributions of sectors to market?

I want to know analytical machine learning methods (the more innovative, the better!) to calculate contributions of sectors (ex. financials, consumer staples, industirals indices) to the market (ex. s&...
121 views

### Need handy formula for $Var[\max(V, K)]$

In Appendix 12A, p. 262 of this book, the author Hull derives a handy, tractable formula for the expression $E[\max(V-K, 0)]$, where $V$ is a lognormally distributed random variable and $K$ is a ...
26 views

### Is this short rate really constant?

Suppose that a financial instrument has a constant short-term rate $r$ and its price $S$ is driven by the equation $$S_t = \mu_t S_t \, {\rm d}t,$$ where $(\mu_t$) is a process adapted to the ...
89 views

54 views

### Calculating Variance of a random variable with time dependence

I am currently trying to undertstand the concept of Value at Risk, which attempts to calculate the a value such that the potential loss on a portfolio is bounded by a number with 99% probability. The ...
273 views

### Generating and interpreting betas for credit spreads

My goal is to model individual credits spreads against a "benchmark" credit spread in order to generate a beta that is the fixed-income equivalent of the market beta used in capital asset pricing ...
38 views

### Has anyone used Machine Learning Techniques for estimating CAPM?

I tried to find papers working out different estimators for CAPM beta or 3 or 4 factor model but couldn‘t find any. Do you know if anyone has used machine learning techniques like xgboost or neural ...
43 views

### Continous vs categorical predictions

I have been thinking about this recently. I want to predict tomorrows price for a certain stock, lets say apple. For this I can use many different models; regression analysis, random forest, RNN... ...
205 views

### Random Forest for financial networks modelling

One of the hottest topics in today econometrics is financial networks models where researches use vector autoregressive (VAR) models applied to time series of daily volatility measurements of ...
35 views

### Annualized Excess Return [closed]

I have been given the following formula to calculated Annualized excess return: Annualized excess return = (1+Monthly excess return)^12-1 The answer is provided ...
841 views

### OLS regression using the CAPM model in python

I've checked several posts here and haven't found what I'm looking for... The goal is to do a CAPM regression and assume that you have the following information: monthly prices for company AAPL, S&...
32 views

### What's the best model for a history of time-stamped events vs. a binary response?

I have three tables: A list of client ids For those clients, 3 years of time-stamped inclusions/exclusions in a credit bureau blacklist For those clients, 1 year of time-stamped negotiations with the ...