Generating virtual scenarios of multivariate financial data for quantitative trading applications

Javier Franco-Pedroso, Joaquin Gonzalez-Rodriguez, Jorge Cubero, Maria Planas, Rafael Cobo and Fernando Pablos

Papers from arXiv.org

Abstract: In this paper, we present a novel approach to the generation of virtual scenarios of multivariate financial data of arbitrary length and composition of assets. With this approach, decades of realistic time-synchronized data can be simulated for a large number of assets, producing diverse scenarios to test and improve quantitative investment strategies. Our approach is based on the analysis and synthesis of the time-dependent individual and joint characteristics of real financial time series, using stochastic sequences of market trends to draw multivariate returns from time-dependent probability functions preserving both distributional properties of asset returns and time-dependent correlation among time series. Moreover, new time-synchronized assets can be arbitrarily generated through a PCA-based procedure to obtain any number of assets in the final virtual scenario. For the validation of such simulated data, they are tested with an extensive set of measurements showing a significant degree of agreement with the reference performance of real financial series, better than that obtained with other classical and state-of-the-art approaches.

Date: 2018-02
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1802.01861

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