Monthly Archives: December 2010

Blog year 2010 in review

The blog year started in August and consists of 30-something posts.  Here is a summary. Most popular Ideas for World Statistics Day A quant review of “The Quants” by Scott Patterson A tale of two returns The tightrope of the random walk What the hell is a variance matrix? Most under-valued Most read is not … Continue reading

Posted in Blog, Book review, Fund management in general, Quant finance, R language, Risk, Statistics | Tagged , , | 5 Comments

The tightrope of the random walk

We’re really interested in markets, but we’ll start with a series of coin tosses.  If the coin lands heads, then we go up one; if it lands tails, we go down one. Figure 1: A coin toss path.Figure 1 is the result of one thousand coin flips.  It is a random walk. The R command … Continue reading

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Making science happen

One of the things I’d most like to happen in finance is for a science mindset to take hold. Perhaps this would happen more if society as a whole were more scientifically oriented.  Perhaps society would be more scientifically oriented if schools taught science better. Science in schools The possibility of learning science in school … Continue reading

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Clever versus simple risk management

David Rowe has a short piece called Regulators Double Down. He argues that risk regulations should be simple at the expense of consistency, rather than complex at the expense of knowing the consequences. I wish to remain a cool remove away from discussions of regulation.  However, I very much agree with David’s argument.  I see … Continue reading

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Feeding a greedy algorithm

The idea of a greedy algorithm (for optimization) is that you do as best you can locally and you don’t worry about the big picture. For some problems a greedy algorithm is guaranteed to get you to the global optimum.  In other cases, no. An intuitive example Suppose you are walking and you want to … Continue reading

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Some quibbles about “The R Book” by Michael Crawley

A friend recently bought The R Book and I said I would tell him of problems that I’ve noticed with it.  You can eavesdrop. Page 4 The word “library” is used instead of “package”.  This (common)  error substantially raises the blood pressure of some people — probably to an unwarranted extent. An R package is … Continue reading

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Freeloading turnstile jumpers

What would happen if I jumped the turnstile at my local tube station?  Well okay, duck under in my case. Best case: people glare at me like I’m scum.  Worst case: I’m thrown back out and have to pay a fine (and there are even more glares). It would be perhaps three to five dollars … Continue reading

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Bear hunting

When were there bear and bull markets in US stocks since 1950? Smoothing While we’d really like to estimate the expected return at each point in time, finding bear markets is ambitious enough.  The plan starts by smoothing the daily returns through time, as in Figure 1. Figure 1: Smoothed returns with a 4 year … Continue reading

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