Heterotic Risk Models

Multifactor Risk Models and Heterotic CAPM

“…See (Kakushadze, 2015d) for source code for building a risk model based on principal components (including for fixing the value of K).…”

“…This generalizes the heterotic risk model construction (Kakushadze, 2015d) to include arbitrary non-industry as well as industry risk factors with generic "weights". By sharing our proprietary know-how we hope to encourage organic risk model building.…”

Factor models for cancer signatures

“…Instead, we will follow a pragmatic approach. One simple ("minimization" based) algorithm was set forth in [Kakushadze, 2015]. We review it below and then give yet another simple algorithm based on eRank (effective rank).…”

“…The idea is simple [Kakushadze, 2015]. It is based on the observation that, as K approaches M , min(ξ 2 i ) goes to 0 (i.e., less and less of the total variance Γ ii ≡ 1 is attributed to the specific variance, and more and more of it is attributed to the factors), while as K approaches 0, max(ξ 2 i ) goes to 1 (i.e., less and less of the total variance is attributed to the factors, and more and more of it is attributed to the specific variance).…”

“…This simple algorithm works well in practical finance applications, see [Kakushadze, 2015], [Kakushadze and Yu, 2016b]. Open source R code for computing statistical factor models (15) utilizing this "minimization" based algorithm for fixing the number of factors K is given in Appendix A of [Kakushadze and Yu, 2016b].…”