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Blending Independent Components and Principal Components Analysis

Abstract and contents

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Abstract

 

In these pages we describe the similarities and differences between independent components analysis and principal components analysis, particularly as applied to portfolio risk model construction. We describe how the best elements of each approach can be blended together to enhance the ability of portfolio risk models to handle fat-tailed behaviour.

 

Contents

 

1.       Introduction and Conclusions

2.       Independent Components Analysis (ICA)

3.       Principal components analysis (PCA)

4.       Blending together PCA and ICA in the construction of risk models

 

Tools

References

 


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