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Statistical Risk Models

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  • Zura Kakushadze
  • Willie Yu

Abstract

We give complete algorithms and source code for constructing statistical risk models, including methods for fixing the number of risk factors. One such method is based on eRank (effective rank) and yields results similar to (and further validates) the method set forth in an earlier paper by one of us. We also give a complete algorithm and source code for computing eigenvectors and eigenvalues of a sample covariance matrix which requires i) no costly iterations and ii) the number of operations linear in the number of returns. The presentation is intended to be pedagogical and oriented toward practical applications.

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  • Zura Kakushadze & Willie Yu, 2016. "Statistical Risk Models," Papers 1602.08070, arXiv.org, revised Jan 2017.
  • Handle: RePEc:arx:papers:1602.08070
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    Cited by:

    1. Zura Kakushadze & Willie Yu, 2018. "Decoding stock market with quant alphas," Journal of Asset Management, Palgrave Macmillan, vol. 19(1), pages 38-48, January.
    2. Zura Kakushadze & Willie Yu, 2017. "Decoding Stock Market with Quant Alphas," Papers 1708.02984, arXiv.org.
    3. Zura Kakushadze & Willie Yu, 2017. "Dead Alphas as Risk Factors," Papers 1709.06641, arXiv.org.
    4. Zura Kakushadze & Willie Yu, 2017. "Mutation Clusters from Cancer Exome," Papers 1707.08504, arXiv.org.
    5. Zura Kakushadze & Willie Yu, 2016. "Statistical Industry Classification," Papers 1607.04883, arXiv.org, revised Dec 2018.
    6. Zura Kakushadze & Willie Yu, 2018. "Betas, Benchmarks and Beating the Market," Papers 1807.09919, arXiv.org.
    7. Zura Kakushadze & Willie Yu, 2018. "Dead alphas as risk factors," Journal of Asset Management, Palgrave Macmillan, vol. 19(2), pages 110-115, March.
    8. Zura Kakushadze & Willie Yu, 2020. "Machine Learning Treasury Yields," Bulletin of Applied Economics, Risk Market Journals, vol. 7(1), pages 1-65.
    9. Zura Kakushadze & Willie Yu, 2021. "ETF Risk Models," Papers 2110.07138, arXiv.org.
    10. Zura Kakushadze & Willie Yu, 2016. "Factor Models for Cancer Signatures," Papers 1604.08743, arXiv.org, revised Jan 2017.
    11. Zura Kakushadze & Willie Yu, 2019. "Machine Learning Risk Models," Papers 1903.06334, arXiv.org, revised Apr 2019.
    12. Zura Kakushadze & Willie Yu, 2017. "Notes on Fano Ratio and Portfolio Optimization," Papers 1711.10640, arXiv.org, revised Apr 2018.
    13. Zura Kakushadze & Willie Yu, 2020. "Machine Learning Treasury Yields," Papers 2003.05095, arXiv.org.
    14. Marco Avellaneda & Juan Andr'es Serur, 2020. "Hierarchical PCA and Modeling Asset Correlations," Papers 2010.04140, arXiv.org.
    15. Kakushadze, Zura & Yu, Willie, 2016. "Factor models for cancer signatures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 527-559.

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