Monthly Archives: March 2011

The devil of overfitting

Overfitting is a problem when trying to predict financial returns.  Perhaps you’ve heard that before.  Some simple examples should clarify what overfitting is — and may surprise you. Polynomials Let’s suppose that the true expected return over a period of time is described by a polynomial. We can easily do this in R.  The first … Continue reading

Posted in Quant finance, R language | Tagged , | 8 Comments

The book of doom

Markets can be disrupted in numerous ways.  We should prepare as best we can. Gloom Here are some things that will happen some day: An epidemic threatens millions or billions of people. A solar storm cuts electricity to wide areas for weeks or months, and destroys satellites — including satnav (which have atomic clocks used … Continue reading

Posted in Risk | Tagged | 1 Comment

Which way is the future?

In the Aymara language the past is in front and the future is behind. It is rare for languages (at least existing ones) to have the metaphor turned this way.  But it makes sense to me — maybe it’s the quant in me. We can see the past, and the most recent past is the … Continue reading

Posted in Fund management in general | Leave a comment

Factor models of variance in finance

In “What the hell is a variance matrix?” I talked about the basics of variance matrices and highlighted challenges for estimating them in finance.  Here we look more deeply at the most popular estimation technique. Models for variance matrices The types of variance estimates that are used in finance can be classified as: Sample estimate … Continue reading

Posted in R language, Risk | Tagged , , , | 10 Comments

Upcoming Events

2011 March 08, 8:00 AM, London EDHEC Risk Institute presents: Raman Uppal How to (or how not to) manage money New approaches for portfolio construction. Admission is free, but registration (soon) is required. More details in the brochure (pdf) 2011 March 08 6PM, London The LondonR meeting. Details at 2011 March 09 6:30, New … Continue reading

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