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Suggestions for using implied variance covariance matrix of rates for PCA

Looking to feed PCA an implied variance covariance matrix of swap rates instead of historical one. Taking advantage of available swaption and capfloor implied volatility surfaces, any suggestions on ...
sigma1988's user avatar
  • 139
1 vote
0 answers
101 views

PCA on covariance matrix with weights on the columns?

I'm reading two papers by Mark Kritzman on two indicators (turbulence proxied by the Mahalanobis distance and absorption ratio which is basically the ratio of the variance captured by the top 20% PCA ...
Bach Pham's user avatar
0 votes
2 answers
9k views

Why is my Covariance matrix not positive definite?

I'm trying to do PCA on historic forward rates. I'm using forward rates from the Bank of England going from Jan 2015 through end of May 2018. I calculate the differences in the rates from one day to ...
M Thomas's user avatar
1 vote
1 answer
2k views

principal component analysis on non stationary data

I read that since stock prices are non-stationary it does not make sense to take their covariance. So I took the log returns of stocks, computed covariance matrix, took the top few eigen vectors that ...
pavybez's user avatar
  • 31
2 votes
0 answers
65 views

Covariance Matrix: Calculating Error [duplicate]

I have a sample covariance matrix that is non positive-semi definite (due to missing data points). I am looking at a number of techniques to 'fix' my covariance matrix and make it positive semi-...
Chris B's user avatar
  • 81
0 votes
1 answer
716 views

Portfolio Optimisation/Covariance Estimation on a large scale

When using Markowitz Portfolio Theory, e.g. for finding an optimal portfolio composition, one needs to have estimates of the returns, but most importantly of the covariance matrix. If our universe of ...
Phil-ZXX's user avatar
  • 1,052
2 votes
0 answers
78 views

Reduced rank / matrix factorisation techniques and their uses in portfolio optimisation?

I am interested in reduced rank / matrix factorisation techniques and their uses across finance and portfolio optimisation. For example, PCA might be used to reduce the number of components you are ...
Chris B's user avatar
  • 81
4 votes
1 answer
1k views

Interpreting Eigenvalues of Co-variance Matrix

Im working on market reaction to events and I'm using the co-variance matrix to do this. In this paper the author writes It has been known for some time that the largest eigenvalue (λ1) contains ...
MosesA's user avatar
  • 143
6 votes
2 answers
592 views

PCA for stand alone equity VaR

I am trying to compute equity VaR, forex VaR and total VaR on an international portfolio (10 stocks x 4 countries). Since I am not interested in the risk disaggregation among diffrent countries I was ...
Marco's user avatar
  • 61
0 votes
1 answer
1k views

PCA on term structure of interest rates

Interest rate time series seems to be non-stationary whenever test is performed But covariance or correlation matrix is derived from term structure time series which are non stationary and later PCA ...
sigirisetti's user avatar
9 votes
0 answers
4k views

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 ...
Anonymous's user avatar
  • 415