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Here's some background reading from April's edition of the Journal
of Finance. This is slightly off topic, but I had been intending to
send this paper to this group and this reminded me that I should
send it around. The conclusion: For portfolios to perform well out
of sample, it is important to incorporate an ensemble of methods
that cover stochastic volatility, time-varying return expectation,
AND parameter uncertainty. It would be great to take this paper as
an excuse to start to develop best practices for some of these
issues.<br>
<br>
pcc<br>
<br>
<br>
<div class="moz-cite-prefix">On 05/19/2014 10:20 AM, Ross Bennett
wrote:<br>
</div>
<blockquote
cite="mid:CAEESW=XVB2yOYxifEe-HXmp-YFBTdNU01HAHNwdHCMD8YtD+ug@mail.gmail.com"
type="cite">
<div dir="ltr"><font face="arial, helvetica, sans-serif">Mentors
(and others on the list),</font>
<div><font face="arial, helvetica, sans-serif"><br>
</font></div>
<div><font face="arial, helvetica, sans-serif">It was great
seeing you all at R/Finance last week.</font></div>
<div><font face="arial, helvetica, sans-serif"><br>
</font></div>
<div><font face="arial, helvetica, sans-serif">Here are the
first 3 tasks in the timeline in my original proposal.</font></div>
<div>
<p style="color:rgb(0,0,0)">
<font face="arial, helvetica, sans-serif"><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">5/19
- 5/30: </span><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">Multilayer
Optimization</span></font></p>
<p style="color:rgb(0,0,0)"><font face="arial, helvetica,
sans-serif"><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">5/31
- 6/13: </span><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">Regime
Switching Optimization</span></font></p>
<p style="color:rgb(0,0,0)"><font face="arial, helvetica,
sans-serif"><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">6/14
- 6/27: </span><span
style="line-height:14px;white-space:pre-wrap">Factor
Portfolio Optimization</span></font></p>
<p style="color:rgb(0,0,0)"><span
style="font-family:arial,helvetica,sans-serif"><br>
</span></p>
<p style="color:rgb(0,0,0)"><span
style="font-family:arial,helvetica,sans-serif">I would
like to modify the timeline as follows:</span><br>
</p>
<p style="color:rgb(0,0,0)"><font face="arial, helvetica,
sans-serif"><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">5/19
- 5/30: </span></font><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">Regime
Switching Optimization</span></p>
<p style="color:rgb(0,0,0)"><font face="arial, helvetica,
sans-serif"><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">5/31
- 6/13: </span></font><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">Factor
Portfolio Optimization</span></p>
<p style="color:rgb(0,0,0)"><font face="arial, helvetica,
sans-serif"><span
style="background-color:transparent;line-height:1.15;white-space:pre-wrap">6/14
- 6/27: </span></font><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">Multilayer
Optimization</span></p>
<p style="color:rgb(0,0,0)"><br>
</p>
<p style="color:rgb(0,0,0)"><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">Regime
Switching Optimization</span></p>
<p><font color="#000000" face="arial, helvetica, sans-serif"><span
style="line-height:14px;white-space:pre-wrap">My code
example for the proposal was for regime switching. I
kept it pretty general so that the user can just pass in
a time series of what portfolio to use depending on the
regime for any arbitrary regime switching model. Do you
have any comments or feedback on my proposed way for
supporting regime switching?</span></font></p>
<p style="color:rgb(0,0,0)"><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">The
regime switching example is in the following code gist</span></p>
<p style="color:rgb(0,0,0)"><span style="color:rgb(34,34,34)"><a
moz-do-not-send="true"
href="https://gist.github.com/rossb34/9645489">https://gist.github.com/rossb34/9645489</a></span></p>
<p style="color:rgb(0,0,0)"><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">
</span></p>
<p style="color:rgb(0,0,0)"><span
style="font-family:arial,helvetica,sans-serif;line-height:14px;white-space:pre-wrap">Factor
Models to Estimate Moments</span></p>
<p><span
style="color:rgb(0,0,0);font-family:arial,helvetica,sans-serif">I
reached out to Kris Boudt a few weeks ago and he shared
some of the code he used for his paper. I put together a
small package as a prototype. One thing to note is that
Kris sent me C++ code (using Rcpp) for computing the
cokurtosis error matrix. I would prefer not to rewrite the
code in R, but this does mean introducing a dependency on
Rcpp. Along these same lines, we could also write
functions to compute the 3rd and 4th moments in C++. The
Armadillo library has a k</span><font color="#000000"
face="arial, helvetica, sans-serif">ron() function to
compute the kronecker product making the higher moments an
easy computation using RcppArmadillo. We could do this as
a prototype in PortfolioAnalytics and eventually move to
PerformanceAnalytics so <a moz-do-not-send="true"
href="http://M3.MM">M3.MM</a> and <a
moz-do-not-send="true" href="http://M4.MM">M4.MM</a> are
compiled code. Thoughts?</font><br>
</p>
<p><font color="#000000" face="arial, helvetica, sans-serif">Here
is the source code of the prototype package for moment
estimates.</font></p>
<p><a moz-do-not-send="true"
href="https://bitbucket.org/rossbennett34/momentestimation/src">https://bitbucket.org/rossbennett34/momentestimation/src</a></p>
<p><br>
</p>
<p>Best,</p>
<p>Ross</p>
</div>
</div>
<br>
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