ABSTRACT
In Chapter 2, we discuss statistical analysis with R. We often have to deal with a large amount of financial data. The volume of data is so large that we have to look at them from a statistical point of view to characterize. We proceed with the discussion in order to build up an intuitive understanding of the statistical concepts and tools that we will be using. We start with the calculation of basic statistics including mean and variance, and cover the concepts of the law of large numbers, the central limit theorem, and the calculation of probability distribution, which are important concepts for Monte Carlo simulation later discussed in Chapter 8. Next, we introduce hypothesis testing, a fundamental concept in statistics, allowing us to test the validity of statistical assumptions, and regression analysis. Finally, we apply the statistical analysis techniques we’ve covered to yield curve analysis. We apply aggression analysis and introduce principal component analysis to the yield curve analysis of Japanese Government Bond price data.
