ECON 424/CFRM
462: Computational Finance and Financial Econometrics

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Class Syllabus
Summer 2015 Note 1: In the Reading column below,
"ZLM" refers to A Beginner's Guide to R by Zuur, Leno and Meesters;
"R Cookbook" refers to R Cookbook by Teetor; "EZ" referes
to book chapters of Introduction to Computational Finance and
Financial Econometrics by Eric Zivot; "EG" refers to Modern Portfolio
Theory by Elton and Gruber;
"Ruppert" refers to Statistics and Data Analysis for Financial Engineering
by Ruppert .
"*" denotes optional reading.
Note 2: Recent changes to the
reading list are denoted with
.
Note 3: My Book chapters are preliminary and incomplete and are not
guaranteed to be free of errors. Also, as the quarter progresses I will be making changes
and additions to the notes so check the revision dates to make sure you have the most up
to date set of notes. Please let me know if you find typos or other
errors.
Last updated on
August 4,
2015 
Week 
Topic 
Reading 
Additional
Material 
1 
Course Introduction
Computing Asset Returns
Getting financial data from Yahoo!
Excel
calculations
Introduction to
R

Univariate random variables and distributions

Ruppert,
chapter 2 (Returns).

EZ,
Book chapter on return calculations.

EZ,
Book chapter on review
of univariate random variables and probability.
EZ,
class slides on course introduction.

EZ,
class
slides on return calculations.

EZ,
class slides on probability review: Part I.

ZLM, chapters 13, 5.

R Cookbook, chapters 1  5, 10 (sections
1  15)
An
Introduction to R, sections 13, 6 and 7.
R
for Beginners, sections 13.

*EG, chapters 13

finance.yahoo.com Check
out finance/quote section
returnCalculations.xls

returnCalculations.r (R code for book chapter examples)

returnCalculations.Rmd
(R markdown file for webpage examples)

returnCalculations.html
(R examples in web page using R markdown  best viewed in Chrome)

Rintro.pdf
(introduction to R covered)

probReview.xls

probReview.r
(R code for book chapter examples)

2
& 3 

Characteristics of distributions

The normal distribution

Linear function of random variables

Quantiles of a distribution, ValueatRisk

Bivariate distributions

Covariance, correlation, autocorrelation

Linear combinations of random variables

Time Series concepts

Matrix algebra


Ruppert, chapter 5 (Modeling Univariate
Distributions),
chapter 7 (Multivariate Statistical Models),
chapter 9
(Time Series Models: Basics),
Appendix (sections 110, 1215, 20)

EZ,
Book chapter on review
of univariate random variables and probability.

EZ,
Book chapter on time series
concepts. (updated January 22 2015)

EZ, Book chapter on review of matrix algebra.

EZ,
class slides on probability review: Part I.

EZ,
class slides
on probability review: Part II.

EZ,
class slides on time series
concepts.

EZ,
class
slides on matrix algebra.

ZLM, chapters 37.

R Cookbook, chapter 8 and chapter 14
(sections 1  16).

An
Introduction to R, section 8.

R for Beginners, section 4.


probReview.xls

probReview.r
(R code for book chapter examples)

probabilityReview.Rmd (R markdown file used to create webpage
examples)

probabilityReview.html (R examples in webpage created with R markdown)

timeSeriesConcepts.r (R code for
book chapter examples)

timeSeriesConcepts.Rmd
(R markdown file used to create webpage examples)

timeSeriesConcepts.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

matrixReview.r
(R code for book chapter examples)

matrixReview.Rmd
(R markdown file used to create webpage examples)

matrixReview.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

Working
with time series data in R

45 

Descriptive statistics: histograms, sample means,
variances, covariances and autocorrelations

The constant expected return model.

Monte Carlo simulation

Standard errors of estimates

Confidence intervals

Bootstrapping
standard errors and confidence intervals

Hypothesis
testing

Midterm
exam: Thursday July 23rd

Midterm solutions

Grade
distribution econ 424


Ruppert,
chapter 4
(Exploratory Data
Analysis),
chapter 5 sections 9 and 10 (maximum likelihood
estimation),
chapter 6 (Resampling),
Appendix (sections 11, 16  18)

EZ,
Book chapter on descriptive statistics.

EZ,
class
slides on descriptive statistics.

EZ, class
slides on CER model.

EZ,
Book chapter on the CER
model. Updated February 23, 2015

EZ,
Book chapter on estimation of the
CER model. Updated
February 23, 2015

EZ, book chapter on bootstrapping
(coming soon!)

EZ,
class
slides on bootstrapping

EZ,
class slides on
hypothesis testing in the CER model.

EZ,
class slides on maximum likelihood
estimation. Note: will not cover this
material this term.

Bootstrap
Methods and Permutation Tests, by Tim Hesterberg. Read sections 1
 5.

R Cookbook, chapter 9 (General
Statistics) chapter 10 (Graphics), chapter 13 (Beyond Basic Numerics
and Statistics, section 8 on Bootstrapping).

An
Introduction to R, section 12.


descriptiveStatistics.r
(R code for book chapter examples)

descriptiveStatisticDaily.r

descriptiveStatistics.Rmd (R markdown
file used to create webpage examples)

descriptiveStatistics.html (R examples
in webpage created with R markdown)

cerModel.r
(R code for book chapter examples)

cerModel.Rmd
(R markdown file used to create webpage examples)

cerModel.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

cerModelEstimation.r (R code for book chapter examples)

cerModelEstimation.Rmd
(R markdown file used to create webpage examples)

cerModelEstimation.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

bootstrap.Rmd
(R markdown file used to create webpage examples)

bootstrap.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

bootStrap.r
(R code examples)

rollingCerModel.Rmd
(R markdown file used to create webpage examples)

rollingCerModel.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

hypothesisTestingCER.r

hypothesisTestingCerModel.Rmd
(R markdown file used to create webpage examples)

hypothesisTestingCerModel.html (R examples in webpage created with
R markdown  best viewed in Chrome)

maximumLikelihood.r

maxLike
R package vignette.

67 

Introduction to portfolio theory

Optimization

Markowitz algorithm

Markowitz Algorithm using the solver and matrix algebra

Risk budgeting


Ruppert, chapter 11 (Portfolio Theory).

EZ,
Book chapter on introduction to portfolio theory.

Notes on using Excel's
solver.

EZ,
class
slides on Introduction to Portfolio Theory.

EZ,
class
slides on portfolio theory with matrix algebra.

EZ,
Book chapter on portfolio theory with matrix algebra.

EZ,
class slides on portfolio risk
budgeting

R Cookbook, chapter 13 (Beyond Basin
Numerics and Statistics, sections 1  2)

*EG, chapters 5
and 6


introPortfolioTheory.xls

3firmExample.xls

introductionToPortfolioTheory.r

introductionToPortfolioTheory.Rmd
(R markdown file used to create webpage examples)

introductionToPortfolioTheory.html
(R examples in webpage created with R markdown  best viewed in
Chrome)

portfolioTheoryMatrix.r

portfolioTheoryMatrix.Rmd ( R markdown file used to create
webpage examples)

portfolioTheoryMatrix.html ( R examples in webpage created with
R markdown  best viewed in Chrome)

portfolio.r
(R functions for portfolio analysis with short sales)

testport.r
(Examples of using R functions for portfolio analysis with short sales)

portfoliofunctions.pdf
(description of R functions for portfolio analysis with short sales)

tablet PC notes for
lecture 9

tablet PC notes for
lecture 10

tablet PC notes for
lecture 11

tablet PC notes for
lecture 12

tablet PC notes for
lecture 13

tablet PC notes for
lecture 14

tablet PC notes for
lecture 15

8 & 9 

Statistical
Analysis of Efficient Portfolios

Beta as a measure of portfolio risk

The Single Index Model

Estimating the Single Index Model using simple linear regression

Capital Asset Pricing Model (CAPM)


Ruppert, chapter 12 (Regression:
Basics), chapter 13 (Regression: Troubleshooting),
chapter 16 (CAPM)

EZ,
class slides on
portfolio theory with no short sales.

EZ
class slides on statistical
properties of efficient portfolios.

EZ class
slides on the single index model.

EZ
class
slides on estimating single index model using regression.

EZ
class slides on the Capital Asset Pricing
Model

R Cookbook, chapter 11 (Linear
Regression and ANOVA)

*EG, chapters 6, 7 and 9


portfolioTheoryNoShortSales.r

portfolio_noshorts.r
(R functions for portfolio analysis with short sales)

testport.r (updated examples to include
no short sales constraints)

rollingPortfolios.r

bootstrapPortfolio.R

singleIndex.r

singleIndexPrices.xls (added May 22,
2006)

testCAPM.r

tablet PC notes for
lecture 16

tablet PC notes for
lecture 17

tablet PC notes for
lecture 18

9 
Final Exam: Thursday August 20 from
1:103:20 in DEM 104.
Final Project: Due Friday August 21 by 8
pm via Canvas or hardcopy in my mailbox or in my office (until 5 pm only) 





