Questions tagged [covariance-estimation]
The covariance-estimation tag has no usage guidance.
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Explanation or implementation of Ledoit-Wolf estimator (without math packages)
I have calculated weights of selected assets in a market-neutral portfolio (presumably with min variance) using PCA and simple data covariance matrix.
The question is :
It is obvious that Cov Matrix ...
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Shrinkage Estimator for Newey-West Covariance Matrix
I like to apply the Newey-West covariance estimator for portfolio optmization which is given by
$$
\Sigma = \Sigma(0) + \frac12 \left (\Sigma(1) + \Sigma(1)^T \right),
$$
where $\Sigma(i)$ is the lag ...
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Implementing Hierarchical PCA for financial time series in R
I would like to implement the method "Hierarchical PCA", as described in the following paper and compare it to a "standard" PCA. I like to do this in R
AVELLANEDA, Marco. ...
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Is Ledoit-Wolf Shrinkage with a Constant Correlation Prior Reasonable for a Stock/Bond Mix?
I've been looking into Ledoit-Wolf shrinkage but I've found the papers concentrate on large numbers of assets that tend to all be highly correlated. Often a universe of large cap stocks.
I'm ...
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What is special about covariance estimation from statistical factor models?
If you were to compare the usual sample covariance estimate to a robust covariance estimate (such as MCD), you can say that the robust estimate is more tolerant to outliers in the data and will not be ...
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What does a non-stochastic limiting shrinkage function mean?
I'm reading the paper "The Power of (Non-)Linear Shrinking: A Review and Guide to Covariance Matrix Estimation" by Ledoit and Wolf (2020). When a function that is used to transform the ...
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OHLC Covarianc Estimation
Is there an R package which can estimate a covariance matrix using OHLC (Open/High/Low/Close) share prices for upwards of 40 shares using the Yang & Zhang method using daily data? I google ...
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Can the covariance matrix be represented as a scalar or something similarly small, instead of a large pair-wise grid?
The covariance matrix tabulates pair-wise interactions between variables (assets) one-at-a-time into a grid, which can quickly become large as the number of assets included in a portfolio, for example,...
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Risk-Neutral covariance matrix of arbitrage-free Nelson Siegel
For my thesis on a Bayesian sampling routine for a modification on arbitrage-free Nelson-Siegel I came across an equation that involves a matrix exponential within an integral, i.e.
$\int_{0}^{\Delta ...
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Correlation coefficient without cash flows?
I'm an intern at a company and one of our tasks is to calculate the the probability of default of both participants of a Swap(a Client and a Bank), for which we first need the correlation coefficient ...
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Estimating an GARCH(1,1) model? Long hand method
I am really trying to invest some time to estimate a GARCH(1,1) method, I know there is many statistical packages that will do this for me (Eviews, MATLAB, R), but I am trying to do this by hand, so ...
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Black Litterman - numerical instability
I am trying to work out the formula for the posterior mean in Black Litterman's model assuming 100% confidence :
Ref: https://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/...
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Fourier transform covariance estimator
I am estimating realized variance and covariance by the estimator described in this paper, and relying on Fourier Transform.
Now, as my data is one day of data in ultra high frequency, so that the ...
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MLE estimate of normal distribution
Probably a naive question. I am quoting this from Greene's econometrics book:
"The occasional statement that the properties of the MLE are only optimal in large samples is not true, however. It can ...
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Reliability of R Package on Covariance Matrix Shrinkage
I recently used a R package CovTools in R with the command CovEst.2003LW(X), where X is your sample covariance matrix as an input, to compute the shrunk covariance matrix (an estimate that is closest ...
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Estimating covariance with intraday data
I have intraday (30 min) data for a number of stocks, and I would like to calculate the covariance matrix of returns.
For the purpose of calculating the covariance matrix, is it better/more correct to ...
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Bias-Variance tradeoff for Covariance Estimation w/ Different Frequencies
In general, what does the bias-variance tradeoff look like when estimating covariance matrices with varying return frequencies (i.e. daily, weekly, monthly returns)?
From my observations I've noticed ...
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