Book Image

Python for Finance Cookbook - Second Edition

By : Eryk Lewinson
5 (1)
Book Image

Python for Finance Cookbook - Second Edition

5 (1)
By: Eryk Lewinson

Overview of this book

Python is one of the most popular programming languages in the financial industry, with a huge collection of accompanying libraries. In this new edition of the Python for Finance Cookbook, you will explore classical quantitative finance approaches to data modeling, such as GARCH, CAPM, factor models, as well as modern machine learning and deep learning solutions. You will use popular Python libraries that, in a few lines of code, provide the means to quickly process, analyze, and draw conclusions from financial data. In this new edition, more emphasis was put on exploratory data analysis to help you visualize and better understand financial data. While doing so, you will also learn how to use Streamlit to create elegant, interactive web applications to present the results of technical analyses. Using the recipes in this book, you will become proficient in financial data analysis, be it for personal or professional projects. You will also understand which potential issues to expect with such analyses and, more importantly, how to overcome them.
Table of Contents (18 chapters)
16
Other Books You May Enjoy
17
Index

Correcting for stationarity in time series

In the previous recipe, we have learned how to investigate if a given time series is stationary. In this one, we investigate how to make a non-stationary time series stationary by using one (or multiple) of the following transformations:

  • deflation - accounting for inflation in monetary series using the Consumer Price Index (CPI)
  • applying the natural logarithm - making the potential exponential trend closer to linear and reducing the variance of the time series
  • differencing - taking the difference between the current observation and a lagged value (observation x time points before it)

For this exercise, we use monthly gold prices from the years 2000 to 2010. We have chosen this sample on purpose, as over that period the price of gold exhibits a consistently increasing trend - the series is definitely not stationary.

How to do it...

Execute the following steps to transform the series from non-stationary to stationary.

  1. Import the libraries...