Appendix - Introduction (in MATLAB/Python)


Copyright 2011, 2016, 2018 Jon Danielsson. This code is free software: you can redistribute it and/or modify it under the terms of the GNU General Public License as published by the Free Software Foundation, either version 3 of the License, or (at your option) any later version. This code is distributed in the hope that it will be useful, but WITHOUT ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the GNU General Public License for more details. The GNU General Public License is available at: https://www.gnu.org/licenses/.
The original 2011 R code will not fully work on a recent R because there have been some changes to libraries. The latest version of the Matlab code only uses functions from Matlab toolboxes.
The GARCH functionality in the econometric toolbox in Matlab is trying to be too clever, but can't deliver and could well be buggy. If you want to try that, here are the docs (estimate). Besides, it can only do univariate GARCH and so can't be used in Chapter 3. Kevin Sheppard's MFE toolbox is much better, while not as user friendly, it is much better written and is certainly more comprehensive. It can be downloaded here and the documentation here is quite detailed.


Listing M.1: Entering and Printing Data
Last updated June 2018

x = 10; % assign x the value 10, silencing output print with ;
disp(x) % display x
		
Listing P.1: Entering and Printing Data in Python
Last updated June 2018

x = 10   # assign x the value 10
print(x) # print the value of x
		

Listing M.2: Vectors, Matrices and Sequences
Last updated June 2018

y = [1,3,5,7,9]            % lists are denoted by square brackets
y(3)                       % calling 3rd element (MATLAB indices start at 1)
size(y)                    % shows that y is 1 x 5 (a row vector, by default)
length(y)                  % as expected, y has length 5
v = nan(2,3)               % fill a 2 x 3 matrix with NaN values
size(v)                    % as expected, v is size (2,3)
w = repmat([1,2,3]', 2, 3) % repeats matrix twice by rows, thrice by columns
s = 1:10                   % s is a list of integers from 1 to 10 inclusive
		
Listing P.2: Vectors, Matrices and Sequences in Python
Last updated June 2018

y = [1,3,5,7,9]                        # lists in square brackets are stored as arrays
print(y)
print(y[2])                            # 3rd element (Python indices start at 0)
print(len(y))                          # as expected, y has length 5
import numpy as np
v = np.full([2,3], np.nan)             # create a 2x3 matrix with NaN values
print(v)
print(v.shape)                         # as expected, v is size (2,3)
w=np.tile(np.transpose([1,2,3]),(3,2)) # repeats twice by rows, thrice by columns
print(w)
s = range(10)                          # an iterator from 0 to 9
print([x for x in s])                  # return  elements using list comprehension
		

Listing M.3: Importing Data
Last updated June 2018

%% There are many data sources for financial data, for instance
%% Yahoo Finance, AlphaVantage and Quandl. However, some of the
%% free data sources have numerous issues with accuracy and
%% handling of missing data, so only CSV importing is shown here.
%%
%% For csv data, one can use csvread to read it
%%
%% Example:
%% data = csvread('data.csv', 1, 0);
%% the two numbers behind are the row offset and column offset
%% so here we ignore the first row (ie. the header)
		
Listing P.3: Importing Data in Python
Last updated June 2018

## There are many data sources for financial data, for instance
## Yahoo Finance, AlphaVantage and Quandl. However, some of the
## free data sources have numerous issues with accuracy and
## handling of missing data, so only CSV importing is shown here.
##
## For csv data, one can use numpy.loadtxt() to read it
##
## Example:
## using numpy as np
## data = np.loadtxt('data.csv', delimiter = ',', skiprows = 1)
## skiprows=1 ensures that the header row is skipped
		

Listing M.4: Basic Summary Statistics
Last updated June 2018

y = [3.14,15,9.26,5];
sum(y)                % sum of all elements of y
prod(y)               % product of all elements of y
max(y)                % maximum value of y
min(y)                % minimum value of y
range(y)              % min, max value of y
mean(y)               % arithmetic mean
median(y)             % median
var(y)                % variance
cov(y)                % covar matrix = variance for single vector
corrcoef(y)           % corr matrix = [1] for single vector
sort(y)               % sorting in ascending order
log(y)                % natural log
		
Listing P.4: Basic Summary Statistics in Python
Last updated June 2018

import numpy as np
y = [3.14,15,9.26,5]
print(sum(y))         # sum of all elements of y
print(max(y))         # maximum value of y
print(min(y))         # minimum value of y
print(np.mean(y))     # arithmetic mean
print(np.median(y))   # median
print(np.var(y))      # variance
print(np.cov(y))      # covar matrix = variance for single vector
print(np.corrcoef(y)) # corr matrix = [1] for single vector
print(np.sort(y))     # sort in ascending order
print(np.log(y))      # natural log
		

Listing M.5: Calculating Moments
Last updated June 2018

mean(y)     % mean
var(y)      % variance
std(y)      % unbiased standard deviation, by default
skewness(y) % skewness
kurtosis(y) % kurtosis
		
Listing P.5: Calculating Moments in Python
Last updated June 2018

import numpy as np
from scipy import stats
print(np.mean(y))                        # mean
print(np.var(y))                         # variance
print(np.std(y, ddof = 1))               # ddof = 1 for unbiased standard deviation
print(stats.skew(y))                     # skewness
print(stats.kurtosis(y, fisher = False)) # fisher = False gives Pearson definition
		

Listing M.6: Basic Matrix Operations
Last updated June 2018

z = [1, 2; 3, 4] % z is a 2 x 2 matrix (Note the use of ; as row separator)
x = [1, 2]       % x is a 1 x 2 matrix
%% Note: z * x is undefined since the two matrices are not conformable
z * x'           % this evaluates to a 2 x 1 matrix
vertcat(z,x)     % "stacking" z and x vertically
horzcat(z,x')    % "stacking z and x' horizontally
%% Note: dimensions must match along the combining axis)
		
Listing P.6: Basic Matrix Operations in Python
Last updated June 2018

import numpy as np
z = np.matrix([[1, 2], [3, 4]])                   # z is a 2 x 2 matrix
x = np.matrix([1, 2])                             # x is a 1 x 2 matrix
## Note: z * x is undefined since the two matrices are not conformable
print(z * np.transpose(x))                        # this evaluates to a 2 x 1 matrix
b = np.concatenate((z,x), axis = 0)               # "stacking" z and x vertically
print(b)
c = np.concatenate((z,np.transpose(x)), axis = 1) # "stacking" z and x horizontally
print(c)
## note: dimensions must match along the combining axis
		

Listing M.7: Statistical Distributions
Last updated June 2018

q = -3:1:3                 % specify a set of values
p = 0.1:0.1:0.9            % specify a set of probabilities
norminv(p, 0, 1)           % element-wise inverse Normal quantile
tcdf(q, 4)                 % element-wise cdf under Student-t(4)
chi2pdf(q, 2)              % element-wise pdf under Chisq(2)
%% One can also obtain pseudorandom samples from distributions
x = trnd(5, 100, 1);       % Sampling 100 times from t dist with 5 df
y = normrnd(0, 1, 100, 1); % Sampling 50 times from a standard normal
%% Given sample data, we can also obtain MLE estimates of distribution parameters:
res = fitdist(x, "Normal") % Fitting x to normal dist
		
Listing P.7: Statistical Distributions in Python
Last updated June 2018

import numpy as np
from scipy import stats
q = np.arange(-3,4,1)                    # specify a set of values
p = np.arange(0.1,1.0,0.1)               # specify a set of probabilities
print(stats.norm.ppf(p))                 # element-wise inverse Normal quantile
print(stats.t.cdf(q,4))                  # element-wise cdf under Student-t(4)
print(stats.chi2.pdf(q,2))               # element-wise pdf under Chisq(2)
## One can also obtain pseudorandom samples from distributions using numpy.random
x = np.random.standard_t(df=5, size=100) # Sampling 100 times from TDist with 5 df
y = np.random.normal(size=50)            # Sampling 50 times from a standard normal
## Given data, we obtain MLE estimates of parameters with stats:
res = stats.norm.fit(x)                  # Fitting x to normal dist
print(res)
		

Listing M.8: Statistical Tests
Last updated June 2018

x = trnd(5, 500, 1);                    % Create hypothetical dataset x
[h1, p1, jbstat] = jbtest(x)            % Jarque-Bera test for normality
[h2, p2, lbstat] = lbqtest(x,'lags',20) % Ljung-Box test for serial correlation
		
Listing P.8: Statistical Tests in Python
Last updated June 2018

from scipy import stats
from statsmodels.stats.diagnostic import acorr_ljungbox
x = np.random.standard_t(df=5, size=500)                # Create dataset x
print(stats.jarque_bera(x))                             # Jarque-Bera test
print(acorr_ljungbox(x, lags=20))                       # Ljung-Box test
		

Listing M.9: Time Series
Last updated June 2018

x = trnd(5, 60, 1); % Create hypothetical dataset x
subplot(1,2,1)
autocorr(x, 20)     % autocorrelation for lags 1:20
subplot(1,2,2)
parcorr(x,20)       % partial autocorrelation for lags 1:20
		
Listing P.9: Time Series in Python
Last updated June 2018

import statsmodels.api as sm
import matplotlib.pyplot as plt
x = np.random.standard_t(df = 5, size = 60)        # Create hypothetical dataset x
q1 = sm.tsa.stattools.acf(y, nlags=20)             # autocorrelation for lags 1:20
plt.bar(x = np.arange(1,len(q1)), height = q1[1:])
plt.show()
plt.close()
q2 = sm.tsa.stattools.pacf(y, nlags=20)            # partial autocorr for lags 1:20
plt.bar(x = np.arange(1,len(q2)), height = q2[1:])
plt.show()
plt.close()
		

Listing M.10: Loops and Functions
Last updated June 2018

%% For loops
for i = 3:7                          % iterates through [3,4,5,6,7]
    i^2
end
%% If-else loops
X = 10;
if (rem(X,3) == 0)
    disp("X is a multiple of 3")
else
    disp("X is not a multiple of 3")
end
%% Functions (example: a simple excess kurtosis function)
%% NOTE: in MATLAB, functions can be defined in 2 locations:
%% 1) in a separate file (e.g. excess_kurtosis.m in this case) in the workspace
%% 2) in the same file as the rest of the code, BUT at the end of the file
%% function k = excess_kurtosis(x, excess)
%%     if nargin == 1                % if there is only 1 argument
%%         excess = 3;               % set excess = 3
%%     end                           % this is how optional param excess is set
%%     m4 = mean((x-mean(x)).^4);
%%     k = m4/(std(x)^4) - excess;
%% end
		
Listing P.10: Loops and Functions in Python
Last updated June 2018

import numpy as np
## For loops
for i in range(3,8):                     # NOTE: range(start, end), end excluded
    print(i**2)                          # range(3,8) iterates through [3,4,5,6,7)
## If-else loops
X = 10
if X % 3 == 0:
    print("X is a multiple of 3")
else:
    print("X is not a multiple of 3")
## Functions (example: a simple excess kurtosis function)
def excess_kurtosis(x, excess = 3):      # note: excess optional, default = 3
    m4=np.mean((x-np.mean(x))**4)        # note: exponentiation in Python uses **
    excess_kurt=m4/(np.std(x)**4)-excess
    return excess_kurt
x = np.random.standard_t(df=5,size=60)   # Create hypothetical dataset x
print(excess_kurtosis(x))
		

Listing M.11: Basic Graphs
Last updated June 2018

y = normrnd(0, 1, 50, 1);
z = trnd(4, 50, 1);
subplot(2,2,1)
bar(y)                    % bar plot
subplot(2,2,2)
plot(y)                   % line plot
subplot(2,2,3)
histogram(y)              % histogram
subplot(2,2,4)
scatter(y,z)              % scatter plot
		
Listing P.11: Basic Graphs in Python
Last updated June 2018

import numpy as np
import matplotlib.pyplot as plt
y = np.random.normal(size = 50)
z = np.random.standard_t(df = 4, size = 50)
## using Matplotlib to plot bar, line, histogram and scatter plots
plt.subplot(2,2,1)
plt.bar(range(len(y)), y)
plt.subplot(2,2,2)
plt.plot(y)
plt.subplot(2,2,3)
plt.hist(y)
plt.subplot(2,2,4)
plt.scatter(y,z)
		

Listing M.12: Miscellaneous Useful Functions
Last updated June 2018

%% Convert objects from one type to another with int8() etc
%% To check type, use isfloat(object), isinteger(object) and so on
x = 8.0;
isfloat(x)
x = int8(x);
isinteger(x)
		
Listing P.12: Miscellaneous Useful Functions in Python
Last updated June 2018

## Convert objects from one type to another with int(), float() etc
## To check type, use type(object)
x = 8.0
print(type(x))
x = int(x)
print(type(x))