🍩 Database of Original & Non-Theoretical Uses of Topology

1. Some Applications of TDA on Financial Markets (2022)

   Miguel Angel Ruiz-Ortiz, José Carlos Gómez-Larrañaga, Jesús Rodríguez-Viorato

   Abstract

   The Topological Data Analysis (TDA) has had many applications. However, financial markets has been studied slightly through TDA. Here we present a quick review of some recent applications of TDA on financial markets and propose a new turbulence index based on persistent homology -- the fundamental tool for TDA -- that seems to capture critical transitions on financial data, based on our experiment with SP500 data before 2020 stock market crash in February 20, 2020, due to the COVID-19 pandemic. We review applications in the early detection of turbulence periods in financial markets and how TDA can help to get new insights while investing and obtain superior risk-adjusted returns compared with investing strategies using classical turbulence indices as VIX and the Chow's index based on the Mahalanobis distance. Furthermore, we include an introduction to persistent homology so the reader could be able to understand this paper without knowing TDA.

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   • Finacial crashes
   • Finance
   • Financial market
   • Confirm
   • Persistent homology