Change of Numeraire Methods; Market Notes 415 pages
In the last post, we released our formulaic alpha report. In the post before that, we released notes on Quadratic Portfolio Optimization problems in Python.
In this post, we add on to the market notes (Chapter 12.7) on change of numeraire methods for continuous time treatments to stochastic calculus. In the next market notes, we introduce computational concepts in linear algebra on Euclidean spaces (we will make this available for all readers) - this sets us up with the machinery and terminology required for talking about the mathematics of multiple random variables. This will help us both in the discussion for portfolio management and the next chapter of stochastic calculus on term structure models.
The discussion of portfolio management will be resumed with looking at the shrinkage method for robust estimations in sample covariance matrix, known as the Ledoit-Wolf method, inspired from Oliver Ledoit of Credit Suisse and Michael Wolf of UZurich.
Preview:
Full Market Notes (paid readers only):