21 – M4 L3b 21 IVol Generalizing The Volatility Factor V2

Now that we’ve walked through risk factor models and Alpha factors, I hope you’ll start to see how you can try out different variations that deviate from the specific methods you see in academic papers. For instance, instead of using the Fama French model to extract idiosyncratic volatility, you may try other risk factor models that you learned about in this module, such as a risk factor model based on principle component analysis. Moreover, you can try pairing iVol with other fundamental factors or really any other Alpha factors as well. If you can develop a good habit of reading academic research, proposing and implementing then evaluating potential Alpha vectors, these experiences will serve you well in preparing for roles in quantitative finance.

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