Conditional Density Estimation with Neural Networks: Best Practices and Benchmarks

Jonas Rothfuss, Fabio Ferreira, Simon Walther and Maxim Ulrich

Papers from arXiv.org

Abstract: Given a set of empirical observations, conditional density estimation aims to capture the statistical relationship between a conditional variable $\mathbf{x}$ and a dependent variable $\mathbf{y}$ by modeling their conditional probability $p(\mathbf{y}|\mathbf{x})$. The paper develops best practices for conditional density estimation for finance applications with neural networks, grounded on mathematical insights and empirical evaluations. In particular, we introduce a noise regularization and data normalization scheme, alleviating problems with over-fitting, initialization and hyper-parameter sensitivity of such estimators. We compare our proposed methodology with popular semi- and non-parametric density estimators, underpin its effectiveness in various benchmarks on simulated and Euro Stoxx 50 data and show its superior performance. Our methodology allows to obtain high-quality estimators for statistical expectations of higher moments, quantiles and non-linear return transformations, with very little assumptions about the return dynamic.

Date: 2019-03, Revised 2019-04
New Economics Papers: this item is included in nep-big and nep-ecm
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Citations: View citations in EconPapers (9)

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