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Applying Independent Component Analysis to Factor Model in Finance

Applying Independent Component Analysis to Factor Model in Finance,10.1007/3-540-44491-2_78,Siu-ming Cha,Lai-wan Chan

Applying Independent Component Analysis to Factor Model in Finance   (Citations: 13)
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Factor model is a very useful and popular model in nance. In this paper, we show the relation between factor model and blind source separation, and we propose to use Independent Component Analysis (ICA) as a data mining tool to construct the underlying factors and hence obtain the corresponding sensitivities for the factor model.
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    • ...1 The technique has been applied in a variety of fields including brain imaging (Vigário et al, 1998, 2000) and telecommunication (Cristescu et al, 2000), and in finance as a noise reduction tool by Back and Weigend (1997) or for the construction of factor models by Cha and Chan (2000)...

    Maximilian Vermorkenet al. Sector classification through non-Gaussian similarity

    • ...For instance, Cha and Chan (2000) suggested using an ICA to build a factor model to analyze the underlying structures of securities...

    Edmond H. C. Wuet al. Data Mining For Hotel Occupancy Rate: An Independent Component Analysi...

    • ...Low-rank representations of financial time-series have also been proposed in [10, 11, 12] to learn asset series interdependencies...
    • ...We model a class of R return series, of length T ,a s being dependent on Q latent, namely underlying, ARCH type time series, the interesting case being when Q<R . Given that each class of return series is dependent on a few ARCH time series, we stack the time series from all the classes and learn a low rank decomposition in the spirit of [10, 11, 12]...

    R. de Freinet al. Extracting Garch Effects from Asset Returns Using Robust NMF

    • ...ICA has been applied in some finance scenarios (Back 1997, Kiviluoto and Oja 1998, Cha and Chan 2000)...

    Kun Zhanget al. Efficient factor GARCH models and factor-DCC models

    • ...[3] discuss the factor model and its importance in many financial theories, such as, Modern Portfolio Theory and Arbitrage Pricing Theory...
    • ...ICA is applied to real returns in [3] by transforming the securities to returns and then learning the I.C.’s and fitting a number of the I.C.’s (Low rank) and weights or sensitivities to the “Independent Factor Model”...

    Ruairi De Freinet al. Portfolio diversification using subspace factorizations

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