Summary of some machine learning concepts and methods

Concepts

Cost function: It is used to measure the accuracy of a predictive model. It takes an average difference of all the results predicted by the model with inputs from x's (features or explanatory variables) and the actual output y's. (Week 1 of Andrew Ng’s class)

Regularization: It is added in the cost function to put some penalty on parameters of a model. It is used to prevent overfitting. (Week 3)

Gradient descent: It is a method to find the local minimum of a function with respect to some parameters. It is used in machine learning to find the best parameters in the model. (Week 1)

Life experience in physics and finance - book review of ‘My life as a quant’

Basic introduction of the book                

The author, Emanuel Derman, is a co-developer of the short rate model – Black-Derman-Toy model. He is also the director of Columbia’s Financial Engineering program. One special thing worth mentioning is that he switched his career from physics to finance at his 40’s.

I read this book with recommendation from a financial engineering program. It is said to be useful for me to understand and accelerate a career in quantitative finance.

The first half part of this book is about Emanuel’s life in physics, and it is not related to finance.

The second part is about his work and thoughts in wall street. The interesting part is that he had worked with many top quantitative finance researchers and practitioners, so the description of these talented guys (including author) is interesting for me to understand how they worked and thought on quantitative finance. 

My different stages in reading WSJ

Initial stage

I started to read WSJ with intention after the recommendation from a famous financial engineering program in US. It is said that reading WSJ is important for a graduate to find a financial job. Then I began to read articles on WSJ, but these articles were way long and took me half an hour to read. Some articles on the homepage seemed not interesting or related to me.  

Gradually as I spent more time on CFA preparation and solving technical problems in financial engineering, I read WSJ less than before. I skimmed headlines and only read interesting ones. As a result, my reading became more related to world news especially in East Asia which I am familiar with. Although I keep reading headlines on the homepage, I have less interest to read these unfamiliar and uninteresting articles.

Two valuable skills which took me years to perform well

Priority setting

Priority setting is the process of determining which tasks are most important. While it's not hard to be busy and crank out the tasks on my to-do list, it's difficult to choose to do the important things - to live my life by priorities.

Compared to some suggestions of setting daily priorities, I consider a long term target to be more important and useful. First, a long term target can help us focus and achieve a not easy target during a long time. Second, with a long term target in mind, it is easy and natural to know what I need to do in a daily base. For example, when I entered financial engineering program at the University of Illinois, I set my first semester’s target to be building knowledge base of quantitative finance. This easily led me to focus on my coursework and FRM exam every day during that semester.

The history of 2010 Flash Crash

By Dongliang “Larry” Yi

Background

The 2010 Flash Crash was a US stock market crash, which started at 2:32 pm, May 6th EDT and lasted for approximately 36 minutes. The Dow Jones Industrial Average experienced its largest intraday point drop, plunging 998.5 points (about 9%) from the opening, most within minutes, only to recover a large part of the loss^[1]. Other stock indexes, such as S&P 500, Russell 3000 and Nasdaq Composite, also collapsed and rebounded very quickly. This market crash immediately caused trillion-dollar market loss, and recovered most of the value at the close. Some blue-chip stocks, like Procter & Gamble, traded as low as $0.01^[2], but closed at $60.75.