Non-parametric cumulants approach for outlier detection of multivariate financial data

ArXiv ID: 2305.10911 “View on arXiv”

Authors: Unknown

Abstract

In this paper, we propose an outlier detection algorithm for multivariate data based on their projections on the directions that maximize the Cumulant Generating Function (CGF). We prove that CGF is a convex function, and we characterize the CGF maximization problem on the unit n-circle as a concave minimization problem. Then, we show that the CGF maximization approach can be interpreted as an extension of the standard principal component technique. Therefore, for validation and testing, we provide a thorough comparison of our methodology with two other projection-based approaches both on artificial and real-world financial data. Finally, we apply our method as an early detector for financial crises.

Keywords: Outlier Detection, Cumulant Generating Function (CGF), Principal Component Analysis, Financial Crises, Multivariate Data, Equities

Complexity vs Empirical Score

• Math Complexity: 8.5/10
• Empirical Rigor: 7.0/10
• Quadrant: Holy Grail
• Why: The paper presents advanced theoretical derivations (e.g., convexity of CGF, concave minimization) and extensive statistical modeling, while also providing thorough empirical validation on both artificial and real-world financial data, including crisis detection.

  flowchart TD
    A["Research Goal<br>Develop outlier detection for<br>multivariate financial data"] --> B["Methodology<br>Maximize CGF on unit circle"]
    B --> C["Key Insight<br>CGF maximization = concave minimization<br>Extension of PCA"]
    D["Data Inputs<br>Artificial & Real-world<br>Equities Data"] --> E["Computational Process<br>Projection on CGF-optimal directions"]
    C --> E
    E --> F["Comparative Validation<br>vs. Standard Projection Methods"]
    F --> G["Outcome 1<br>Effective Outlier Detection"]
    F --> H["Outcome 2<br>Early Financial Crisis Detection"]