The new kid on the block in finance seems to be random matrix theory. Although RMT as a theory is not so new (about 50 years) and was first used in quantum mechanics it being used in finance is a quite recent phenomenon.
RMT in itself is a fascinating area of study concerning the eigenvalues of random matrices and finding laws that govern their distribution (a little bit like the central limit theorem for random variables). These laws show up in all kinds of areas (even in such arcane places like the spacings of the zeros of the Riemann-Zeta function in number theory) - and nobody really understands why...
For a good first treatment see this non-technical article by Terence Tao.
My question:
Do you know (other) accessible intros to Random Matrix Theory - and its application in finance?
Answer
Check out page 55 in "Quantitative Equity Investing: Techniques and Strategies," Fabozzi et al.
Section is titled "Random Matrix Theory" - very intro. The context pertains to the estimation of a large covariance matrix.
Also, see work at Capital Fund Management, filed under:
Random Matrix and Finance : correlations and portfolio optimisation
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