9. Fundamental Analysis | Mastering R for Quantitative Finance

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Mastering R for Quantitative Finance

By : Gabler

4 (11)

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.

Preface

Preface

What this book covers

What you need for this book

Who this book is for

Conventions

Reader feedback

Customer support

Free Chapter

1. Time Series Analysis

1. Time Series Analysis

Multivariate time series analysis

Volatility modeling

Summary

References and reading list

2. Factor Models

2. Factor Models

Arbitrage pricing theory

Modeling in R

Summary

References

3. Forecasting Volume

3. Forecasting Volume

Motivation

The intensity of trading

The volume forecasting model

Implementation in R

Summary

References

4. Big Data – Advanced Analytics

4. Big Data – Advanced Analytics

Getting data from open sources

Introduction to big data analysis in R

K-means clustering on big data

Big data linear regression analysis

Summary

References

5. FX Derivatives

5. FX Derivatives

Terminology and notations

Currency options

Exchange options

Quanto options

Summary

References

6. Interest Rate Derivatives and Models

6. Interest Rate Derivatives and Models

The Black model

The Vasicek model

The Cox-Ingersoll-Ross model

Parameter estimation of interest rate models

Using the SMFI5 package

Summary

References

7. Exotic Options

7. Exotic Options

A general pricing approach

The role of dynamic hedging

How R can help a lot

A glance beyond vanillas

Greeks – the link back to the vanilla world

Pricing the Double-no-touch option

Another way to price the Double-no-touch option

The life of a Double-no-touch option – a simulation

Exotic options embedded in structured products

Summary

References

8. Optimal Hedging

8. Optimal Hedging

Hedging of derivatives

Hedging in the presence of transaction costs

Further extensions

Summary

References

9. Fundamental Analysis

9. Fundamental Analysis

The basics of fundamental analysis

Collecting data

Revealing connections

Including multiple variables

Separating investment targets

Setting classification rules

Backtesting

Industry-specific investment

Summary

References

10. Technical Analysis, Neural Networks, and Logoptimal Portfolios

10. Technical Analysis, Neural Networks, and Logoptimal Portfolios

Market efficiency

Technical analysis

Neural networks

Logoptimal portfolios

Summary

References

11. Asset and Liability Management

11. Asset and Liability Management

Data preparation

Interest rate risk measurement

Liquidity risk measurement

Modeling non-maturity deposits

Summary

References

12. Capital Adequacy

12. Capital Adequacy

Principles of the Basel Accords

Risk measures

Risk categories

Summary

References

13. Systemic Risks

13. Systemic Risks

Systemic risk in a nutshell

The dataset used in our examples

Core-periphery decomposition

The simulation method

Possible interpretations and suggestions

Summary

References

Index

Index

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Revealing connections

To start our investigation for shares with huge upside potential, we have to check the connections between individual ratios quantified a year ago and the total return of the next year. For the sake of this chapter, we picked the following ratios. We took the values from 1 year earlier so that we can contrast these with last year's TRS:

Cash/assets 1 year ago
Net fixed assets/total number of assets 1 year ago
Assets/1000 employees 1 year ago
Price/cash flow average of last 5 years 1 year ago
Price/cash flow 1 year ago
Operating income/net sales 1 year ago
Dividend payout ratio 1 year ago
Asset turnover 1 year ago
P/BV 1 year ago
Operating income/net sales 1 year ago
Revenue growth in the last 1 year 1 year ago
Long-term debt/capital 1 year ago
Debt/EBITDA 1 year ago
Market capitalization 1 year ago
P/E 1 year ago

Calculating Pearson's correlation coefficients may be a good start:

d_filt <- na.omit(d)[,setdiff(1:19, c(1,2,18))]
cor_mtx <- cor(d_filt)
round(cor_mtx, 3)

When looking...

Visually different images

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