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)

Advanced Machine Learning Models in Finance

In Chapter 8, Identifying Credit Default with Machine Learning, we introduced the workflow of solving a real-life problem using machine learning. We went over the entire pipeline, from cleaning the data to training a model (a classifier, in that case) and evaluating its performance. However, this is rarely the end of the project. We used a simple decision tree classifier, which most of the time can be used as a benchmark or minimum viable product (MVP). We will now approach a few more advanced topics.

We start the chapter by presenting how to use more advanced classifiers (also based on decision trees). Some of them (such as XGBoost or LightGBM) are frequently used for winning machine learning competitions (such as those found on Kaggle). Additionally, we introduce the concept of stacking multiple machine learning models, to further...