Principal component analysis of the yield curve

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Pair trading: Clustering based on principal component analysis

This study focuses on the implementation of several pair trading strategies across three emerging markets, with the objective of comparing the results obtained from the different strategies and assessing if pair trading benefits from a more volatile environment. The results show that, indeed, there are higher potential profits arising from emerging markets. However, the higher excess return will be partially offset by higher transaction costs, which will be a determinant factor to the profitability of pair trading strategies. Also, a new clustering approach based on the Principal Component Analysis was tested as an alternative to the more standard clustering by Industry Groups. The new clustering approach delivers promising results, consistently reducing volatility to a greater extent than the Industry Group approach, with no significant harm to the excess returns.

Electrophysiological constituents of the P100 and N170 ERP complex: De-constructing of face processing using independent component analysis and robust estimation.

The initial timing of face-specific effects in event-related potentials (ERPs) is a point of contention in face processing research. Although effects during the time of the N170 are robust in the literature, inconsistent effects during the time of the P100 challenge the interpretation of the N170 as being the initial face-specific ERP effect. The interpretation of the early P100 effects are often attributed to low-level differences between face stimuli and a host of other image categories. Research using sophisticated controls for low-level stimulus characteristics (Rousselet, Husk, Bennett, & Sekuler, 2008) report robust face effects starting at around 130 ms following stimulus onset. The present study examines the independent components (ICs) of the P100 and N170 complex in the context of a minimally controlled low-level stimulus set and a clear P100 effect for faces versus houses at the scalp. Results indicate that four ICs account for the ERPs to faces and houses in the first 200ms following stimulus onset. The IC that accounts for the majority of the scalp N170 (icNla) begins dissociating stimulus conditions at approximately 130 ms, closely replicating the scalp results of Rousselet et al. (2008). The scalp effects at the time of the P100 are accounted for by two constituent ICs (icP1a and icP1b). The IC that projects the greatest voltage at the scalp during the P100 (icP1a) shows a face-minus-house effect over the period of the P100 that is less robust than the N 170 effect of icN 1 a when measured as the average of single subject differential activation robustness. The second constituent process of the P100 (icP1b), although projecting a smaller voltage to the scalp than icP1a, shows a more robust effect for the face-minus-house contrast starting prior to 100 ms following stimulus onset. Further, the effect expressed by icP1 b takes the form of a larger negative projection to medial occipital sites for houses over faces partially canceling the larger projection of icP1a, thereby enhancing the face positivity at this time. These findings have three main implications for ERP research on face processing: First, the ICs that constitute the face-minus-house P100 effect are independent from the ICs that constitute the N170 effect. This suggests that the P100 effect and the N170 effect are anatomically independent. Second, the timing of the N170 effect can be recovered from scalp ERPs that have spatio-temporally overlapping effects possibly associated with low-level stimulus characteristics. This unmixing of the EEG signals may reduce the need for highly constrained stimulus sets, a characteristic that is not always desirable for a topic that is highly coupled to ecological validity. Third, by unmixing the constituent processes of the EEG signals new analysis strategies are made available. In particular the exploration of the relationship between cortical processes over the period of the P100 and N170 ERP complex (and beyond) may provide previously unaccessible answers to questions such as: Is the face effect a special relationship between low-level and high-level processes along the visual stream?

Spectral clustering independent component analysis for tissue classification from brain MRI

A spectral angle based feature extraction method, Spectral Clustering Independent Component Analysis (SC-ICA), is proposed in this work to improve the brain tissue classification from Magnetic Resonance Images (MRI). SC-ICA provides equal priority to global and local features; thereby it tries to resolve the inefficiency of conventional approaches in abnormal tissue extraction. First, input multispectral MRI is divided into different clusters by a spectral distance based clustering. Then, Independent Component Analysis (ICA) is applied on the clustered data, in conjunction with Support Vector Machines (SVM) for brain tissue analysis. Normal and abnormal datasets, consisting of real and synthetic T1-weighted, T2-weighted and proton density/fluid-attenuated inversion recovery images, were used to evaluate the performance of the new method. Comparative analysis with ICA based SVM and other conventional classifiers established the stability and efficiency of SC-ICA based classification, especially in reproduction of small abnormalities. Clinical abnormal case analysis demonstrated it through the highest Tanimoto Index/accuracy values, 0.75/98.8%, observed against ICA based SVM results, 0.17/96.1%, for reproduced lesions. Experimental results recommend the proposed method as a promising approach in clinical and pathological studies of brain diseases

Brain Tissue Classification from Multispectral MRI by Wavelet based Principal Component Analysis

In this paper, we propose a multispectral analysis system using wavelet based Principal Component Analysis (PCA), to improve the brain tissue classification from MRI images. Global transforms like PCA often neglects significant small abnormality details, while dealing with a massive amount of multispectral data. In order to resolve this issue, input dataset is expanded by detail coefficients from multisignal wavelet analysis. Then, PCA is applied on the new dataset to perform feature analysis. Finally, an unsupervised classification with Fuzzy C-Means clustering algorithm is used to measure the improvement in reproducibility and accuracy of the results. A detailed comparative analysis of classified tissues with those from conventional PCA is also carried out. Proposed method yielded good improvement in classification of small abnormalities with high sensitivity/accuracy values, 98.9/98.3, for clinical analysis. Experimental results from synthetic and clinical data recommend the new method as a promising approach in brain tissue analysis.

Wavelet based Independent Component Analysis for Multispectral Brain Tissue Classification

Multispectral analysis is a promising approach in tissue classification and abnormality detection from Magnetic Resonance (MR) images. But instability in accuracy and reproducibility of the classification results from conventional techniques keeps it far from clinical applications. Recent studies proposed Independent Component Analysis (ICA) as an effective method for source signals separation from multispectral MR data. However, it often fails to extract the local features like small abnormalities, especially from dependent real data. A multisignal wavelet analysis prior to ICA is proposed in this work to resolve these issues. Best de-correlated detail coefficients are combined with input images to give better classification results. Performance improvement of the proposed method over conventional ICA is effectively demonstrated by segmentation and classification using k-means clustering. Experimental results from synthetic and real data strongly confirm the positive effect of the new method with an improved Tanimoto index/Sensitivity values, 0.884/93.605, for reproduced small white matter lesions

New insights on river water chemistry by using non-centred simplicial principal component analysis: a case study

The use of perturbation and power transformation operations permits the investigation of linear processes in the simplex as in a vectorial space. When the investigated geochemical processes can be constrained by the use of well-known starting point, the eigenvectors of the covariance matrix of a non-centred principal component analysis allow to model compositional changes compared with a reference point. The results obtained for the chemistry of water collected in River Arno (central-northern Italy) have open new perspectives for considering relative changes of the analysed variables and to hypothesise the relative effect of different acting physical-chemical processes, thus posing the basis for a quantitative modelling

Independent component analysis of climate data: A new look at EOF rotation

The complexity inherent in climate data makes it necessary to introduce more than one statistical tool to the researcher to gain insight into the climate system. Empirical orthogonal function (EOF) analysis is one of the most widely used methods to analyze weather/climate modes of variability and to reduce the dimensionality of the system. Simple structure rotation of EOFs can enhance interpretability of the obtained patterns but cannot provide anything more than temporal uncorrelatedness. In this paper, an alternative rotation method based on independent component analysis (ICA) is considered. The ICA is viewed here as a method of EOF rotation. Starting from an initial EOF solution rather than rotating the loadings toward simplicity, ICA seeks a rotation matrix that maximizes the independence between the components in the time domain. If the underlying climate signals have an independent forcing, one can expect to find loadings with interpretable patterns whose time coefficients have properties that go beyond simple noncorrelation observed in EOFs. The methodology is presented and an application to monthly means sea level pressure (SLP) field is discussed. Among the rotated (to independence) EOFs, the North Atlantic Oscillation (NAO) pattern, an Arctic Oscillation–like pattern, and a Scandinavian-like pattern have been identified. There is the suggestion that the NAO is an intrinsic mode of variability independent of the Pacific.

The underlying return generating factors for REIT returns: an application of independent component analysis

Multi-factor approaches to analysis of real estate returns have, since the pioneering work of Chan, Hendershott and Sanders (1990), emphasised a macro-variables approach in preference to the latent factor approach that formed the original basis of the arbitrage pricing theory. With increasing use of high frequency data and trading strategies and with a growing emphasis on the risks of extreme events, the macro-variable procedure has some deficiencies. This paper explores a third way, with the use of an alternative to the standard principal components approach – independent components analysis (ICA). ICA seeks higher moment independence and maximises in relation to a chosen risk parameter. We apply an ICA based on kurtosis maximisation to weekly US REIT data using a kurtosis maximising algorithm. The results show that ICA is successful in capturing the kurtosis characteristics of REIT returns, offering possibilities for the development of risk management strategies that are sensitive to extreme events and tail distributions.