Category Archives: Blog
A test of new market circuit breakers
The Barron’s article “Hitting the Switch on New Circuit Breakers” describes a backtest of the proposed new rules for circuit breakers in American markets. All trades for 2008 through 2010 were inspected relative to the so-called “limit up-limit down” scheme. Result: Maybe we should think a little more about it. Subscribe to the Portfolio Probe … Continue reading
Random input software testing
The usual approach to testing software is to create a specific problem and see if the software gets the correct answer. Although this is very useful, there are problems with it: It is labor-intensive It almost totally neglects to test the code that throws errors There can be unconscious bias in the test cases created … Continue reading
A view of useR!2011
Start Brian Ripley The conference was opened with a talk by Brian Ripley. I’ll distort his talk into 3 points that came across to me. 1. R Core is finite The time available from R Core members is a strictly limited good. The more that is pushed onto R Core, the less attention to details. … Continue reading
Twisted valuation
100 years ago today a small, rather obscure masterpiece was stolen from the Louvre by a disillusioned former(?) employee. Subsequently: the painting was recovered during an attempt to sell it to an Italian museum the painting toured Italy a campaign started in Italy to keep the painting a campaign started in France to get it … Continue reading
Posted in Fund management in general
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Statistical construction error
Yes, the title is meant to have two readings. The effect The Numbers Guy, among other examples, talks about the UK Office for National Statistics needing to revise its estimate for the construction sector output because of an error. Original: 2.3% growth Corrected: 0.5% growth Here is the Telegraph article cited by The Numbers Guy. … Continue reading
The standards of pundits
From Saturday Morning Breakfast Cereal: Hat tip to This is the Green Room Subscribe to the Portfolio Probe blog by Email
Appropriate risk modeling
A response to Danielsson and Macrae. Previously In “The appropriate use of risk models” I presented a synopsis of the Danielsson and Macrae document by the same name, and urged you to read it (it’s not very long). Simplicity I highlighted the sentence: This suggests that models used to constrain risk should be substantially simpler … Continue reading
The ecology of collateral haircuts
New Scientist has an editorial that points to “Complexity, Concentration and Contagion” out of the Bank of England. The paper describes some experiments with a network calibrated to look like the UK banking sector. The experiments are trying to determine the effect of haircuts on collateral for interbank loans. Subscribe to the Portfolio Probe blog … Continue reading
Posted in Economics
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The indices understate the carnage
The first 6 trading days of August have been bad for the major indices, but how variable is that across portfolios? To answer that, two sets of random portfolios were generated from the constituents of the S&P 500. The trading days are 2011 August 1 — 5 and 8. The returns of the indices for … Continue reading
An exercise in quality control
To fix a broken market. The exercise Some teachers of quality control present their students with a series of pictures like Figure 1. Figure 1: Center the process on (0, 0). The students are tasked with centering the process at zero in both dimensions. The students put the center near where they’ve seen points. It … Continue reading
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