Multi-factor Models and Signal Processing Techniques (PDF)

With recent outbreaks of multiple large-scale financial crises,
amplified by interconnected risk sources, a new paradigm of fund
management has emerged. This new paradigm leverages
"embedded" quantitative processes and methods to
provide more transparent, adaptive, reliable and easily implemented
"risk assessment-based" practices.

This book surveys the most widely used factor models employed
within the field of financial asset pricing. Through the concrete
application of evaluating risks in the hedge fund industry, the
authors demonstrate that signal processing techniques are an
interesting alternative to the selection of factors (both
fundamentals and statistical factors) and can provide more
efficient estimation procedures, based on lq regularized Kalman
filtering for instance.

With numerous illustrative examples from stock markets, this book
meets the needs of both finance practitioners and graduate students
in science, econometrics and finance.

Contents

Foreword, Rama Cont.

1. Factor Models and General Definition.

2. Factor Selection.

3. Least Squares Estimation (LSE) and Kalman Filtering (KF) for
Factor Modeling: A Geometrical Perspective.

4. A Regularized Kalman Filter (rgKF) for Spiky Data.

Appendix: Some Probability Densities.

About the Authors

Serge Darolles is Professor of Finance at Paris-Dauphine
University, Vice-President of QuantValley, co-founder of QAMLab
SAS, and member of the Quantitative Management Initiative (QMI)
scientific committee. His research interests include financial
econometrics, liquidity and hedge fund analysis. He has written
numerous articles, which have been published in academic
journals.

Patrick Duvaut is currently the Research Director of Telecom
ParisTech, France. He is co-founder of QAMLab SAS, and member of
the Quantitative Management Initiative (QMI) scientific committee.
His fields of expertise encompass statistical signal processing,
digital communications, embedded systems and QUANT finance.

Emmanuelle Jay is co-founder and President of QAMLab SAS. She has
worked at Aequam Capital as co-head of R&D since April 2011 and
is member of the Quantitative Management Initiative (QMI)
scientific committee. Her research interests include SP for
finance, quantitative and statistical finance, and hedge fund
analysis.