Book Image

Python for Finance Cookbook

By : Eryk Lewinson
Book Image

Python for Finance Cookbook

By: Eryk Lewinson

Overview of this book

Python is one of the most popular programming languages used in the financial industry, with a huge set of accompanying libraries. In this book, you'll cover different ways of downloading financial data and preparing it for modeling. You'll calculate popular indicators used in technical analysis, such as Bollinger Bands, MACD, RSI, and backtest automatic trading strategies. Next, you'll cover time series analysis and models, such as exponential smoothing, ARIMA, and GARCH (including multivariate specifications), before exploring the popular CAPM and the Fama-French three-factor model. You'll then discover how to optimize asset allocation and use Monte Carlo simulations for tasks such as calculating the price of American options and estimating the Value at Risk (VaR). In later chapters, you'll work through an entire data science project in the financial domain. You'll also learn how to solve the credit card fraud and default problems using advanced classifiers such as random forest, XGBoost, LightGBM, and stacked models. You'll then be able to tune the hyperparameters of the models and handle class imbalance. Finally, you'll focus on learning how to use deep learning (PyTorch) for approaching financial tasks. By the end of this book, you’ll have learned how to effectively analyze financial data using a recipe-based approach.
Table of Contents (12 chapters)

Changing frequency

The general rule of thumb for changing frequency can be broken down into the following:

  • Multiply/divide the log returns by the number of time periods.
  • Multiply/divide the volatility by the square root of the number of time periods.

In this recipe, we present an example of how to calculate the monthly realized volatilities for Apple using daily returns and then annualize the values.

The formula for realized volatility is as follows:

Realized volatility is frequently used for daily volatility using the intraday returns.

The steps we need to take are as follows:

  • Download the data and calculate the log returns.
  • Calculate the realized volatility over the months.
  • Annualize the values by multiplying by , as we are converting from monthly values.

Getting ready