Thursday, January 12, 2012

Reconstructing missing observations with R

I've been playing with reconstruction of missing observations for the last couple of days.

Say you've got a quotations of some equity that miss some data points.

You may want to have them reconstructed for example for pairs trading.

What do you do then?

Chart: example of VAR reconstruction of missing data

I've preliminary tested a number of potential methods from simple mean to Dynamic Linear Models to Random Forest.

Performance varies, but for the moment three reconstruction methods seems to lead the pack: simple mean, some Dynamic Linear Model and Vector Autoregression.

Chart: comparison of various reconstruction methods for one case

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