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Introduction to R for Quantitative Finance

Introduction to R for Quantitative Finance

3.2 (20)
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Introduction to R for Quantitative Finance

Introduction to R for Quantitative Finance

3.2 (20)

Overview of this book

Introduction to R for Quantitative Finance will show you how to solve real-world quantitative fi nance problems using the statistical computing language R. The book covers diverse topics ranging from time series analysis to fi nancial networks. Each chapter briefl y presents the theory behind specific concepts and deals with solving a diverse range of problems using R with the help of practical examples.This book will be your guide on how to use and master R in order to solve quantitative finance problems. This book covers the essentials of quantitative finance, taking you through a number of clear and practical examples in R that will not only help you to understand the theory, but how to effectively deal with your own real-life problems.Starting with time series analysis, you will also learn how to optimize portfolios and how asset pricing models work. The book then covers fixed income securities and derivatives such as credit risk management.
Table of Contents (17 chapters)
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Introduction to R for Quantitative Finance
Credits
About the Authors
About the Reviewers
www.PacktPub.com
Preface
2
Index

Solution concepts


In the last 50 years, many great algorithms have been developed for numerical optimization and these algorithms work well, especially in case of quadratic functions. As we have seen in the previous section, we only have quadratic functions and constraints; so these methods (that are implemented in R as well) can be used in the worst case scenarios (if there is nothing better).

However, a detailed discussion of numerical optimization is out of the scope of this book. Fortunately, in the special case of linear and quadratic functions and constraints, these methods are unnecessary; we can use the Lagrange theorem from the 18th century.

Theorem (Lagrange)

If and , (where ) have continuous partial derivatives and is a relative extreme point of f(x) subject to the constraint where .

Then, there exist the coefficients such that

In other words, all of the partial derivatives of the function are 0 (Bertsekas Dimitri P. (1999)).

In our case, the condition is also sufficient. The...

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