Statistics For Financial Engineering: Some R Examples: David Ruppert
Statistics For Financial Engineering: Some R Examples: David Ruppert
Financial
Engineering:
Some R
Examples
David Ruppert
Statistics for Financial Engineering: Some R
Introduction
Nonlinear
Examples
Regression
Default probabilities
Data
Transformations:
some theory David Ruppert
Estimating a
dynamic
model Cornell University
Interest rate data
Checking the model:
residual analysis
GARCH models
April 25, 2009
Bayesian
estimation of
expected
returns
Outline
Statistics for
Financial
Engineering:
Some R
Examples
1 Introduction
David Ruppert
2 Nonlinear Regression
Introduction
Default probabilities
Nonlinear
Regression Data Transformations: some theory
Default probabilities
Data
Transformations:
some theory 3 Estimating a dynamic model
Estimating a
dynamic
Interest rate data
model Checking the model: residual analysis
Interest rate data
Checking the model:
residual analysis
GARCH models
GARCH models
Bayesian
estimation of
4 Bayesian estimation of expected returns
expected
returns
A little about myself
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
BA and MA in mathematics
Introduction
Nonlinear
PhD in statistics in 1977
Regression
Default probabilities
Data
taught in the statistics department at North Carolina for
Transformations:
some theory
Estimating a
10 years
dynamic
model
Interest rate data
have been in Operations Research and Information
Checking the model:
residual analysis
GARCH models
(formerly Industrial) Engineering at Cornell since 1987
Bayesian
estimation of
expected
returns
A little about myself
Statistics for
Financial
Engineering:
Some R
Examples
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
Nonlinear
Regression
Default probabilities
Data
Transformations:
some theory
Estimating a
dynamic
model
Interest rate data
Checking the model:
residual analysis
GARCH models
Bayesian
estimation of
expected
returns
A little about my research
Statistics for
Financial
Engineering:
Some R
have done research in
Examples
asymptotic theory of splines
David Ruppert
semiparametric modeling
Introduction
measurement error in regression
Nonlinear
Regression smoothing (nonparametric regression and density
Default probabilities
Data
Transformations:
estimation)
some theory
Estimating a
transformation and weighting
dynamic
model stochastic approximation
Interest rate data
Checking the model: biostatistics
residual analysis
GARCH models environmental engineering
Bayesian
estimation of modeling of term structure
expected
returns executive compensation and accounting fraud
Three types of regression
Statistics for
Financial
Engineering: Linear regression
Some R
Examples
David Ruppert
Yi = β0 + β1 Xi,1 + · · · + βp Xi,p + i , i = 1, . . . , n
Statistics for
Financial
Engineering:
Some R
Examples Usually 1 , . . . , n are assumed to be:
David Ruppert
mutually independent (or at least uncorrelated)
Introduction
Estimating a
dynamic
model
Interest rate data
Much research over the last 50+ years has looked into ways of
Checking the model:
residual analysis
GARCH models
1 checking these assumptions
Bayesian
estimation of
expected
2 statistical methods that require less assumptions
returns
Transform-both-sides model
Statistics for
Financial Ideal model (no errors):
Engineering:
Some R
Examples
Yi = f (X i , β)
David Ruppert
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
Nonlinear
Data:
Regression
Default probabilities
Data
ratings: 1=Aaa (best),...,16=B3 (worse)
Transformations:
some theory
default frequency (estimate of default probability)
Estimating a
dynamic
model
Interest rate data
Checking the model:
residual analysis
GARCH models
Bayesian
estimation of
expected
returns
Some statistical models
Statistics for
Financial
Engineering:
Some R nonlinear model:
Examples
David Ruppert
Pr(default|rating) = exp{β0 + β1 rating}
Introduction
Statistics for
Financial
Engineering:
Some R
Examples Transform-both-sides (TBS) model – see Carroll and
David Ruppert
Ruppert (1984, 1988):
Introduction
Nonlinear
using a power transformation:
Regression
Default probabilities λ λ
Data
Transformations:
Pr(default|rating) + κ = exp(β0 + β1 rating) + κ
some theory
Estimating a
dynamic
model λ chosen by residual plots (or maximum likelihood)
Interest rate data
Checking the model: λ = 1/2 works well for this example
residual analysis
GARCH models log transformations are also commonly used
Bayesian
estimation of κ > 0 will shift data away from 0
expected
returns
The Box-Cox family
Statistics for
Financial
Engineering:
Some R
Examples
the most common transformation family is due to Box and
David Ruppert
Cox (1964):
Introduction
Nonlinear yλ − 1
Regression h(y, λ) = if λ 6= 0
Default probabilities λ
Data
Transformations: = log(y) if λ = 0
some theory
Estimating a
dynamic derivative has simple form:
model
Interest rate data
d
h(y, λ) = y λ−1 for all λ
Checking the model:
residual analysis hy (y, λ) =
GARCH models dy
Bayesian
estimation of
expected
returns
TBS fit compared to others
Statistics for
Financial
Engineering:
Some R ●
Examples ●
●
●
David Ruppert BOW
0 ●
nonlinear ●
●
tbs
Introduction
o data ●
log(default probability)
● ●
Nonlinear
Regression
−5
Default probabilities
Data
Transformations:
some theory
Estimating a
−10
dynamic
model
Interest rate data
Checking the model:
residual analysis
● ● ● ● ● ●
GARCH models
Bayesian
estimation of 5 10 15
expected
returns rating
Nonlinear regression residuals
Statistics for
Financial
Engineering:
Some R
Examples
Normal QQ plot
David Ruppert
2
● ●
0.006
Introduction ●
1
Theoretical Quantiles
Nonlinear ●
absolute residual
0.004
●
Regression ●
●
Default probabilities ●
0
●
Data ●
●
Transformations: ●
●
0.002
some theory ●
●
−1
● ●
Estimating a ●
●
dynamic
●● ●
●
model ●
0.000
● ●
● ●
−2
Interest rate data
Checking the model:
0.00 0.02 0.04 0.06 0.08 0.10 0.12 −0.006 −0.002 0.002 0.006
residual analysis
GARCH models fitted values Sample Quantiles
Bayesian
estimation of
expected
returns
TBS residuals
Statistics for
Financial
Engineering:
Some R
Examples
Normal QQ plot
David Ruppert
2
● ●
0.020
●
●
Introduction ●
1
Theoretical Quantiles
Nonlinear
0.015
●
absolute residual
● ● ●
Regression ●
●
●
●
●
Default probabilities ●
0
●
0.010
●
Data ● ●
●
Transformations: ●
some theory ●
●
−1
0.005
●
Estimating a ●
●
dynamic ●
●
●
model
● ●
−2
Interest rate data
Checking the model:
−0.02 0.02 0.06 0.10 −0.02 −0.01 0.00 0.01 0.02
residual analysis
GARCH models fitted values Sample Quantiles
Bayesian
estimation of
expected
returns
Estimated default probabilities
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
Nonlinear
method Pr{default|Aaa}
c as % of TEXTBOOK est
Regression
Default probabilities
TEXTBOOK 0.005% 100%
Data
Transformations:
nonlinear 0.002% 40%
some theory
TBS 0.0008% 16%
Estimating a
dynamic
model
Interest rate data
Checking the model:
residual analysis
GARCH models
Bayesian
estimation of
expected
returns
A Similar Problem: Challenger Data
Statistics for
Financial
Engineering:
Some R
Examples
2.0
David Ruppert
*
Introduction
1.5
# o−rings distressed
Nonlinear
Regression
Default probabilities
1.0
Data
Transformations:
some theory
Estimating a
** * *
dynamic
0.5
model
Interest rate data
Checking the model:
residual analysis
0.0
***** ** **
** ** *
GARCH models
Bayesian
estimation of 55 60 65 70 75 80
expected
returns
temp
Challenger Data: Extrapolation to 31o
Statistics for
Financial
Engineering: Logistic regression
Some R
Examples
David Ruppert 6
all data
5
Introduction
only data with failures
# o−rings distressed
Nonlinear
4
Regression
Default probabilities
Data
3
Transformations:
some theory
Estimating a
*
2
dynamic
model
** * *
Interest rate data
1
***********
**
GARCH models
0
Bayesian
estimation of 30 40 50 60 70 80 90
expected
returns
temp
Variance stabilizing transformation: how it works
Statistics for
Financial
Engineering:
Some R
Examples 3.0
David Ruppert
Introduction
2.5
●
Nonlinear Pop 2 ●●●●●
●
●
Regression transformed ● ●
2.0
Default probabilities ●
Data
Transformations:
some theory
1.5
y
Estimating a
dynamic
1.0
model
Interest rate data log(x)
Checking the model: Pop 1 ●
●
residual analysis ●●
0.5
GARCH models
transformed ●
●
●
●
●
●
Bayesian
0.0
estimation of
expected Pop 1 Pop 2
returns
0 5 10
Strength of Box-Cox family
Statistics for
Financial
Engineering:
Some R
Examples Take a < b
David Ruppert Then λ−1
hy (b, λ) b
Introduction =
Nonlinear
hy (a, λ) a
Regression
Default probabilities which is increasing in λ and equals 1 when λ = 1
Data
Transformations:
some theory λ = 1 is the dividing point between concave and convex
Estimating a transformations
dynamic
model
Interest rate data
h(y, λ) becomes a stronger concave transformation as λ
Checking the model:
residual analysis
decreases from 1
GARCH models
also, h(y, λ) becomes a stronger convex transformation as
Bayesian
estimation of λ increases from 1
expected
returns
Strength of Box-Cox family, cont.
Statistics for
Financial
Engineering:
Some R
Examples Example: b/a = 2
David Ruppert
Introduction 2.0
2α−1
1.5
Nonlinear
Derivative ratio
Regression
Default probabilities
Data
Transformations: convex
1.0
some theory
Estimating a
dynamic
model
0.5
Statistics for
Financial
Engineering:
Some R
Examples
h i2
n
X h(Yi + κ, λ) − h f (X i , β) + κ, λ
David Ruppert L(β, λ, σ) = n log(σ) −
i=1
2σ 2
Introduction
n
X
Nonlinear
Regression
+ (λ − 1) log(Yi )
Default probabilities i=1
Data
| {z }
Transformations:
some theory
from Jacobian
Estimating a
dynamic
model can maximize over σ analytically:
Interest rate data
Pn h i2
b2 = n −1 i=1 h(Yi + κ, λ) − h f (X i , β) + κ, λ
Checking the model:
residual analysis σ
GARCH models
Bayesian
estimation of
they maximize over (β, λ) with optim, for example
expected
returns κ is fixed in advance
Reference for TBS
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
Nonlinear
Regression
Default probabilities
Data
Transformations:
some theory
Estimating a
dynamic
model Transformation and Weighting in Regression by Carroll and
Interest rate data
Checking the model: Ruppert (1988)
residual analysis
GARCH models
Lots of examples
Bayesian
estimation of
expected
returns But none in finance _
¨
1-Year Treasury Constant Maturity Rate, daily data
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction 15
Nonlinear
10
rate
Regression
Default probabilities
Data
Transformations:
some theory
5
Estimating a
dynamic
model
Interest rate data
Checking the model:
residual analysis
1970 1980 1990 2000
GARCH models
year
Bayesian
estimation of
expected
returns Source: Board of Governors of the Federal Reserve System
http://research.stlouisfed.org/fred2/
∆Rt versus year
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
1.0
Introduction
0.5
change in rate
Nonlinear
Regression
Default probabilities
0.0
Data
Transformations:
some theory
−0.5
Estimating a
dynamic
model
Interest rate data
−1.0
Bayesian
estimation of
1970 1980 1990 2000
expected
returns year
∆Rt versus Rt−1
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction 1.0
0.5
Nonlinear
change in rate
Regression
Default probabilities
0.0
Data
Transformations:
some theory
−0.5
Estimating a
dynamic
model
−1.0
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction 1.2
change in rate2
Nonlinear
0.8
Regression
Default probabilities
Data
Transformations:
some theory
0.4
Estimating a
dynamic
model
0.0
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Discretized diffusion model:
Introduction
Nonlinear
Regression
∆Rt = µ(Rt−1 ) + σ(Rt−1 )t
Default probabilities
Data
Transformations:
some theory
Bayesian
estimation of
expected
returns
Estimating Volatility
Statistics for
Financial
Engineering: Parametric model:
Some R
Examples
β1
David Ruppert Var{(∆Rt )} = β0 Rt−1
Introduction
(Common in practice)
Nonlinear
Regression
Default probabilities
Data
Transformations:
Nonparametric model:
some theory
Estimating a
dynamic
Var{(∆Rt )} = σ 2 (Rt−1 )
model
Interest rate data
Checking the model: where σ(·) is a smooth function
residual analysis
GARCH models
will be modeled as a spline
Bayesian
estimation of
expected In these models: no dependence on t
returns
Spline Software
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
The penalized spline fits shown here were obtained using the
Nonlinear
Regression function spm
Default probabilities
Data
Transformations:
in R’s SemiPar package
some theory
Estimating a
author is Matt Wand
dynamic
model
Interest rate data
Checking the model:
residual analysis
GARCH models
Bayesian
estimation of
expected
returns
Comparing parametric and nonparametric volatility
fits
Statistics for
Financial
Engineering:
Some R
Examples 1.2
●
David Ruppert ●
0.08
●
● nonpar
1.0
Introduction
● par
Nonlinear ●
0.06
0.8
Regression ●
diff_rate^2
Default probabilities ●
●
0.6
Data ●
●
0.04
Transformations: ● ● ●
●
some theory
●
0.4
●
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Estimating a ●● ● ●
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0.02
dynamic ● ●●●
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model ● ● ●●●
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0.2
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Interest rate data
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GARCH models
Bayesian
estimation of 5 10 15 5 10 15
expected
returns
lag_rate lag_rate
Comparing parametric and nonparametric volatility
fits: zooming in near 0
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
0.006
Introduction nonpar
par
Nonlinear
0.002
Regression
Default probabilities
Data
Transformations:
some theory
−0.002
Estimating a
dynamic
model
−0.006
Statistics for
Financial
Engineering:
Some R
Examples
1.0
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Nonlinear
5 10 15 5 10 15
Regression
Default probabilities lag_rate lag_rate
Data
Transformations:
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Estimating a
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GARCH models
Bayesian
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Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
residualt := ∆Rt − µ
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Regression
Default probabilities
Data
Transformations:
some theory
Estimating a
dynamic residualt
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Interest rate data σ
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Checking the model:
residual analysis
GARCH models
E(std residual2t ) = 1
Bayesian
estimation of
expected
returns
Question
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
Nonlinear
Regression
Default probabilities
Are the drift and volatility functions constant in time?
Data
Transformations:
some theory
Estimating a
dynamic
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Interest rate data
Checking the model:
residual analysis
GARCH models
Bayesian
estimation of
expected
returns
Residual plots: ordinary residuals
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
0.010
Nonlinear
Regression
residual
Default probabilities
Data
0.000
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some theory
Estimating a
dynamic
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−0.010
Bayesian
1970 1980 1990 2000
estimation of
expected year
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Residual plots: standardized residuals
Statistics for
Financial
Engineering:
Some R
Examples
autocorrelation function Normal Q−Q Plot
David Ruppert
4
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0 10 20 30 40 −10 −5 0 5
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GARCH models
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Bayesian
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Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
1.5
Introduction
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Nonlinear
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GARCH models
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1970 1980 1990 2000
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Financial
Engineering:
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1.0
David Ruppert
Introduction
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0.2
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Financial
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David Ruppert at = t σt ,
Introduction
where v
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some theory
i=1 i=1
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and
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residual analysis
GARCH models
Statistics for
Financial
Engineering:
Some R
Examples Call:
David Ruppert
garch(x = std_drift_resid^2, order = c(1, 1))
Introduction
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GARCH(1,1)
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Data Estimate Std. Error t value Pr(>|t|)
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model
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GARCH models
data: Squared.Residuals
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estimation of
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Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
3.5
GARCH conditional std
Introduction
Nonlinear
Regression
2.5
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residual analysis
GARCH models
Statistics for
Financial
Engineering:
Some R GARCH residuals
Examples
David Ruppert
1.0
Introduction
0.8
Nonlinear
Regression
0.6
Default probabilities
ACF
Data
Transformations:
0.4
some theory
Estimating a
dynamic
0.2
model
Interest rate data
0.0
Bayesian 0 10 20 30 40
estimation of
expected
Lag
returns
AR(1)/GARCH(1,1)
Statistics for
Financial
Engineering: Call:
Some R garchFit(formula = ~arma(1, 0) + garch(1, 1), data = std_drift_resid)
Examples
Statistics for
Financial
Engineering:
Some R AR(1)/GARCH(1,1) residuals
Examples
David Ruppert
1.0
Introduction
0.8
Nonlinear
Regression
0.6
Default probabilities
ACF
Data
Transformations:
0.4
some theory
Estimating a
dynamic
0.2
model
Interest rate data
0.0
Bayesian 0 10 20 30 40
estimation of
expected
Lag
returns
AR(1)/GARCH(1,1) residuals - QQ plot
Statistics for
Financial
Engineering:
Some R Normal Q−Q Plot
Examples
David Ruppert
4
●
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Introduction ●●
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Theoretical Quantiles
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2
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Data ●
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0
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Transformations:
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some theory ●
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Estimating a ●
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−2
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model ●
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Interest rate data ●
●● ●
●
Checking the model: ●●
−4
residual analysis ●
GARCH models
Bayesian −10 −5 0 5
estimation of
expected
Sample Quantiles
returns
AR(1)/GARCH(1,1)
Statistics for
Financial
Engineering: Call:
Some R
Examples garchFit(formula = ~arma(1, 0) + garch(1, 1), data = std_drift_resid,
cond.dist = "std")
David Ruppert
Statistics for
Financial
Engineering:
Some R QQ−plot using t(3.91)
Examples
David Ruppert
●
10 ●
Introduction ●
●●
Theoretical quantiles
●
●
●
●
●●
Nonlinear ●●
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●
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5
Regression ●●
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Transformations: ●
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−5
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Estimating a ●
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●
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●
dynamic ●●●●
●●●
−10
model ● ●
●
Interest rate data ●
Checking the model:
residual analysis ●
GARCH models
Bayesian −10 −5 0 5
estimation of
expected
Sample quantiles
returns
Final model for the interest rate dynamics
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
∆Rt = µ(Rt−1 ) + σ(Rt−1 )at
Introduction
Nonlinear
Regression 1 Model was fit in two steps:
Default probabilities
Data
Transformations:
1 estimate µ() and σ()
some theory
spm in SemiPar
Estimating a
dynamic
model 2 model at as AR(1)/GARCH(1,1)
Interest rate data
Checking the model: garchFit in fGarch
residual analysis
GARCH models
Bayesian
2 Could the two step be combined?
estimation of
expected
returns
3 Would combining them change the results?
Reference for spline modeling
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
Nonlinear
Regression
Default probabilities
Data
Transformations:
some theory
Estimating a
dynamic
model
Interest rate data
Checking the model:
Semiparametric Regression by Ruppert, Wand, and Carroll
residual analysis
GARCH models
(2003)
Bayesian
estimation of
Lots of examples.
expected
returns
But most from biostatistics and epidemiology
Bayesian statistics
Statistics for
Financial
Engineering:
Some R
Examples
Bayesian analysis allows the use of prior information
David Ruppert
hierarchical priors can:
Introduction
Nonlinear
specify knowledge that a group of parameters are similar to
Regression
Default probabilities
each other
Data
Transformations: estimate their common distribution
some theory
Estimating a
dynamic
WinBUGS can be run from inside R using the R2WinBUGS
model
Interest rate data package
Checking the model:
residual analysis
GARCH models
there is a similar BRugs package that runs OpenBugs
Bayesian
estimation of
BRugs is no longer on CRAN
expected
returns
Data
Statistics for
Financial
Engineering:
Some R
Examples
David Ruppert
Introduction
midcapD.ts in fEcofin package
Nonlinear
Regression
Default probabilities
500 daily returns on:
Data
Transformations:
some theory
20 stocks
Estimating a market
dynamic
model
Interest rate data
Checking the model:
residual analysis
GARCH models
Bayesian
estimation of
expected
returns
Goal
Statistics for
Financial
Engineering:
Some R
Examples
The goal is to use the first 100 days to estimate the mean
David Ruppert
returns for the next 400 days
Introduction
Nonlinear
Four possible estimators:
Regression
Default probabilities sample means
Data
Transformations:
some theory
Bayes estimation (shrinkage)
Estimating a
dynamic
model mean of means (total shrinkage)
Interest rate data
Checking the model:
residual analysis
CAPM
GARCH models
Bayesian
(expected return) = beta × (expected market return)
estimation of
expected
returns
Who won?
Statistics for
Financial
Engineering:
Some R
Examples Estimate Sum of squared errors
David Ruppert
sample means 1.9
Introduction
Bayes 0.17
Nonlinear
Regression
Default probabilities
mean of means 0.12
Data
Transformations:
some theory
CAPM 1 0.66
Estimating a
dynamic
CAPM 2 0.45
model
Interest rate data
Checking the model: Squared estimation errors are summed over the 20 stocks
residual analysis
GARCH models
Statistics for
Financial
Engineering:
Some R
Examples
0.6
Nonlinear
Regression
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Default probabilities ●
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Data
mean
mean
Transformations: ● ● ●
0.2
0.2
some theory ●
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Estimating a ●
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dynamic ● ●
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model ●
−0.2
−0.2
Interest rate data ●
Checking the model: ●
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residual analysis ●
GARCH models
Statistics for
Financial
Engineering:
Some R
Examples
ri,t = tth return on i stock
David Ruppert Likelihood:
Introduction ri,t = µi + i,t
Nonlinear
Regression i,t ∼ IN (0, σ2 )
Default probabilities
Data
Transformations:
some theory IN = “Independent Normal”
Estimating a
dynamic Hierarchical Prior:
model
Interest rate data
Checking the model:
µi ∼ IN (α, σµ2 )
residual analysis
GARCH models
Bayesian
Diffuse (non-informative) priors on α, σ2 , σµ2
estimation of
expected Auto and cross-sectional correlations are ignored (treated as 0)
returns
Data-driven shrinkage
Statistics for
Financial
Engineering:
Some R
Examples Hierarchical Prior:
David Ruppert
µi ∼ IN (α, σµ2 )
Introduction
Nonlinear
Regression
the µi are shrunk towards α
Default probabilities
Data
Transformations:
α should be (approximately) the mean of the means
some theory
Statistics for
Financial
Engineering:
Some R > print(means.sim,digits=3)
Examples Inference for Bugs model at "midCap.bug", fit using WinBUGS,
3 chains, each with 5100 iterations (first 100 discarded)
David Ruppert n.sims = 15000 iterations saved
mean sd 2.5% 25% 50% 75% 97.5% Rhat n.eff
mu[1] 1.1e-01 0.169 -0.22 -1.0e-03 1.1e-01 2.1e-01 4.5e-01 1 4000
Introduction mu[2] 1.2e-01 0.170 -0.20 1.5e-02 1.2e-01 2.3e-01 4.7e-01 1 6500
mu[3] 7.7e-02 0.168 -0.27 -2.7e-02 7.9e-02 1.8e-01 4.1e-01 1 3300
Nonlinear mu[4] 4.5e-02 0.176 -0.33 -6.1e-02 5.2e-02 1.6e-01 3.8e-01 1 1300
Regression
Default probabilities mu[18] 8.3e-02 0.170 -0.27 -2.4e-02 8.7e-02 1.9e-01 4.1e-01 1 3000
Data mu[19] 5.1e-02 0.171 -0.32 -5.1e-02 5.7e-02 1.6e-01 3.7e-01 1 1700
Transformations:
some theory mu[20] 4.8e-02 0.175 -0.33 -5.8e-02 5.5e-02 1.6e-01 3.7e-01 1 1800
sigma_mu 1.5e-01 0.065 0.06 9.9e-02 1.3e-01 1.8e-01 3.1e-01 1 520
Estimating a sigma_eps 4.3e+00 0.068 4.18 4.3e+00 4.3e+00 4.4e+00 4.4e+00 1 15000
dynamic alpha 8.8e-02 0.102 -0.11 1.7e-02 8.8e-02 1.6e-01 2.8e-01 1 710
model deviance 1.2e+04 3.989 11510.00 1.2e+04 1.2e+04 1.2e+04 1.2e+04 1 5300
Interest rate data
Checking the model: For each parameter, n.eff is a crude measure of effective sample size,
residual analysis and Rhat is the potential scale reduction factor (at convergence, Rhat=1).
GARCH models
DIC info (using the rule, pD = Dbar-Dhat)
Bayesian pD = 4.1 and DIC = 11521.6
estimation of DIC is an estimate of expected predictive error (lower deviance is better).
expected
returns