This is a summary of links featured on Quantocracy on Saturday, 12/11/2021. To see our most recent links, visit the Quant Mashup. Read on readers!
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Back to basics: PCA on stocks returns [Gautier Marti]A short code snippet to apply PCA on stocks returns. No secret sauce is used here to clean the empirical covariance matrix. This blog post will mostly serve as a basis for comparing several flavours of PCA and their impact on ex-ante volatility estimation. We may look in future blog posts into Sparse PCA, Nonlinear PCA, Kernel PCA, Robust PCA, revisit our previous implementation of Hierarchical
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The risk-reversal premium [SR SV]The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money call options with equal expiration dates. The premium apparently arises from equity investors demand for downside protection, while most market participants are prohibited from selling put options. A typical risk reversal strategy is a delta-hedged long position in out-of-the-money