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Mastering R for Quantitative Finance

Mastering R for Quantitative Finance

By : Gabler
4 (11)
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Mastering R for Quantitative Finance

Mastering R for Quantitative Finance

4 (11)
By: Gabler

Overview of this book

This book is intended for those who want to learn how to use R's capabilities to build models in quantitative finance at a more advanced level. If you wish to perfectly take up the rhythm of the chapters, you need to be at an intermediate level in quantitative finance and you also need to have a reasonable knowledge of R.
Table of Contents (15 chapters)
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14
Index

Including multiple variables


One method to build a performance-prediction model could be using multiple variable regression models. A linear estimation should only include variables with minimal linear connection among them. As we have just seen, our explanatory variables are more or less independent of each other, which is great. It is bad news, though, that these variables individually also have low correlation with the dependent variable, TRS.

To get the best linear estimation, we may choose from several methods. One option is to first include all variables and ask R to drop step by step the one with the lowest significance (step-wise method). Under another widely used method, R could start with one variable only and enter stepwise the next one with the highest explanatory power (the backward method). Here, we picked the latter, as the first method could not end with a significant model:

library(MASS)
vars <- colnames(d_filt)
m <- length(vars)
lin_formula <- paste(vars[m], paste...

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