Michael Wolf, Shrinkage Estimation of Large Covariance Matrices: Keep It Simple, Statistician?

EPFL Statistics seminars

15 May 2020, Sofia Charlotta Olhede, 75 views

Under rotation-equivariant decision theory, sample covariance matrix eigenvalues can be optimally shrunk by recombining sample eigenvectors with a (potentially nonlinear) function of the unobservable population covariance matrix. The optimal shape of this function reflects the loss/risk that is to be minimized.

We solve the problem of optimal covariance matrix estimation under a variety of loss functions motivated by statistical precedent, probability theory, and differential geometry. A key ingredient of our nonlinear shrinkage methodology s a new estimator of the angle between sample and population eigenvectors, without making strong assumptions on the population eigenvalues.

We also introduce a broad family of covariance matrix estimators that can handle all regular functional transformations of the population covariance matrix under large-dimensional asymptotics.

In addition, we compare via Monte Carlo simulations our methodology to two simpler ones from the literature, linear shrinkage and shrinkage based on the spiked covariance model.

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