9,791 research outputs found
A machine learning approach to portfolio pricing and risk management for high-dimensional problems
We present a general framework for portfolio risk management in discrete
time, based on a replicating martingale. This martingale is learned from a
finite sample in a supervised setting. The model learns the features necessary
for an effective low-dimensional representation, overcoming the curse of
dimensionality common to function approximation in high-dimensional spaces. We
show results based on polynomial and neural network bases. Both offer superior
results to naive Monte Carlo methods and other existing methods like
least-squares Monte Carlo and replicating portfolios.Comment: 30 pages (main), 10 pages (appendix), 3 figures, 22 table
Sparsity Oriented Importance Learning for High-dimensional Linear Regression
With now well-recognized non-negligible model selection uncertainty, data
analysts should no longer be satisfied with the output of a single final model
from a model selection process, regardless of its sophistication. To improve
reliability and reproducibility in model choice, one constructive approach is
to make good use of a sound variable importance measure. Although interesting
importance measures are available and increasingly used in data analysis,
little theoretical justification has been done. In this paper, we propose a new
variable importance measure, sparsity oriented importance learning (SOIL), for
high-dimensional regression from a sparse linear modeling perspective by taking
into account the variable selection uncertainty via the use of a sensible model
weighting. The SOIL method is theoretically shown to have the
inclusion/exclusion property: When the model weights are properly around the
true model, the SOIL importance can well separate the variables in the true
model from the rest. In particular, even if the signal is weak, SOIL rarely
gives variables not in the true model significantly higher important values
than those in the true model. Extensive simulations in several illustrative
settings and real data examples with guided simulations show desirable
properties of the SOIL importance in contrast to other importance measures
Targeting Bayes factors with direct-path non-equilibrium thermodynamic integration
Thermodynamic integration (TI) for computing marginal likelihoods is based on an inverse annealing path from the prior to the posterior distribution. In many cases, the resulting estimator suffers from high variability, which particularly stems from the prior regime. When comparing complex models with differences in a comparatively small number of parameters, intrinsic errors from sampling fluctuations may outweigh the differences in the log marginal likelihood estimates. In the present article, we propose a thermodynamic integration scheme that directly targets the log Bayes factor. The method is based on a modified annealing path between the posterior distributions of the two models compared, which systematically avoids the high variance prior regime. We combine this scheme with the concept of non-equilibrium TI to minimise discretisation errors from numerical integration. Results obtained on Bayesian regression models applied to standard benchmark data, and a complex hierarchical model applied to biopathway inference, demonstrate a significant reduction in estimator variance over state-of-the-art TI methods
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