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Blog Highlights...

For anyone who might have come across this blog for the first time, there's definitely a lot of material to cover from the past couple of years.  So I thought I'd provide a list of some of my favorites.  Enjoy!

Happy new year everyone!

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Modeling Credit Risk...

     Here's a link to a presentation I gave back in August on modeling credit risk.  If anyone would like a copy of the slides, go ahead and drop me a line... https://www.gotostage.com/channel/39b3bd2dd467480a8200e7468c765143/recording/37684fe4e655449f9b473ec796241567/watch      Timeline of the presentation: Presentation Begins:                                                                0:58:00 Logistic Regression:                                     ...
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Variable Types for Principal Component & Factor Modeling

TRANSFORMING RAW DATA INTO INSIGHT & ACTIONABLE INFORMATION After reading the book Moneyball for the first time, I built a factor model in hopes of finding a way to finally be competitive in my fantasy baseball league - which I had consistently been terrible at.  It worked immediately.  By taking raw data and turning it into actionable information, I was able to solve a problem that had long perplexed me.  It was like discovering a new power.  What else could I do with this? Today, I build models for everything and have come a long way since that first simple spreadsheet but still use a lot of the same concepts. To build a traditional factor model, you would regress a dependent variable against a series of independent variables and use the resulting beta coefficients as the factor weights... assuming your resulting r-squared and t-test showed a meaningful relationship of course. Variables typically fall into one of two categories... continuous or dichotomous....
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Convexity as a Technical Indicator - Applications of the Second Derivative...

WHAT'S IN A NAME? In investment parlance, the term 'convexity' is typically reserved for the topic of fixed income risk; especially in regards to debt with embedded optionality where negative convexity is a prominent pricing factor.  However, it is important to recall that 'convexity' (or 'concavity', for that matter) is a mathematical measurement used to describe the second derivative of a continuous, nonlinear function on an interval. The issue with confining the term to a single connotation is that - for better or worse - investment tools have become increasingly nonlinear since the days of the 60/40 model and convexity is present in a number of applications.  The extent to which it has been circumscribed to a single asset class is evident in equity option jargon where the second derivative of the pricing function is called 'gamma' instead of convexity.  Of course, the argument could be made that the principle purpose of option vernacular is to c...
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