BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE,

PILANI
HYDERABAD CAMPUS
SECOND SEMESTER 2024
CHE F266 STUDY PROJECT

PROJECT TITLE & PLAN OF WORK

Date: 15-02-2024

1. Title of the project:

"High Dimensional Model Reduction and its application "

2. Need for the study:

Studying High Dimensional Model Reduction (HDMR) is important in today’s era

especially when dimensional analysis is becoming a lost art and certainly it needs a
revival due to its efficiency in overcoming challenges associated with high-dimensional
spaces, sparse data, and intricate functional dependencies. In general, HDMR excels
in addressing the curse of dimensionality, making it suitable for applications in natural
sciences, finance, and materials science. Its capacity to represent multivariate
functions with lower-dimensional terms, handle arbitrary data distributions, and
estimate variable importance adds versatility to its use. In the field of finance and
trading , HDMR proves invaluable for modeling complex relationships within
high-dimensional financial datasets, enhancing risk management, optimizing portfolios,
and providing insights into variable importance for informed decision-making in
investment and risk assessment.

3. Objectives:

● To understand how HDMR analysis helps in different fields especially in finance

and trading .
● To simplify the complex high dimensional equations using HDMR.
● To explore the applications of HDMR in various fields, particularly with reference
to finance, and identify the diverse domains where it can be effectively used.

4. Literature Review:

The exploration of High Dimensional Model Representation (HDMR) in the field of

finance is a topic of increasing interest, driven by the complex and high-dimensional
nature of financial datasets. The existing research reveals a growing recognition of the
challenges faced in financial modeling and the potential of HDMR to address these
challenges effectively. The utilization of machine learning techniques, particularly the
RS-HDMR-GPR method, emerges as a promising method for representing
multidimensional functions in finance.

In the context of financial modeling, challenges related to the "curse of dimensionality"

have been a focal point . Traditional approaches, such as polynomial interpolation and
direct product basis expansions, often struggle to cope with the exponential growth in
computational requirements as the dimensionality increases. The sparse sampling of
financial data worsened the difficulties, prompting researchers to seek alternative
methods capable of handling high-dimensional spaces with limited data.

The introduction of HDMR as a framework for representing functions with

lower-dimensional terms becomes very important in addressing these challenges. The
literature underscores the significance of HDMR in capturing intricate relationships
within financial datasets, enabling the recovery of functional dependence from sparse
data, imputation of missing values, and the sorting of the useful number of terms. The
algorithm's flexibility in using terms of specific dimensionality aligns well with the
variable-rich environment of financial markets, allowing for the estimation of the relative
importance of different combinations of input variables.

A notable aspect of the literature is the demonstration of the RS-HDMR-GPR method

on various test cases, showcasing its capabilities across synthetic analytic functions,
potential energy surfaces of molecules, kinetic energy densities of materials, and
financial market data. The application of HDMR in finance proves to be particularly
insightful, with examples illustrating its effectiveness in optimizing portfolio
management, enhancing risk modeling, and providing qualitative information about
variable importance in financial contexts.

While the literature on HDMR in finance is still evolving, the existing studies lay a strong
foundation for further exploration. Researchers acknowledge the need for more
comprehensive investigations into the specific challenges posed by financial datasets
and the detailed applications of HDMR in this domain. Future studies are expected to
dive deeper into the algorithm's scalability, its performance with various types of
financial data, and its potential integration with other machine learning methods.

5. Work Plan (Include Detailed Methodology with Time Schedule):

 S.No. Topics to be discussed Timeline (2
weeks
duration)

1 Introduction 24-01-24

2 HDMR analysis 07-02-24

3 Understand how to use 21-02-24

GUI_HDMR software

4 HDMR in finance 06-03-24

5 Applying HDMR on 27-03-24

collected Financial data

6 Conclusion and future 7-04-24

scope

6. Methodology:
To gain comprehensive insights into my project on High Dimensional Model
Representation (HDMR), I initiated my research by reviewing relevant literature and
research papers that dive into the intricacies of HDMR techniques. Setting a structured
two-week plan, I aim to accomplish specific targets while meticulously checking for any
potential errors in my work. To augment my understanding, I plan to explore multiple
articles on platforms like ResearchGate and Google Scholar. Following this extensive
literature review, my strategy includes employing MATLAB to simulate and assess the
effectiveness of the HDMR technique. The objective is to evaluate if this approach can
potentially reduce processing time without compromising system efficiency. I have
scheduled regular weekly meetings with my supervisor to discuss my progress, seek
guidance, and gain valuable insights into the intricacies of HDMR within the context of
my specific project.

7. References

1. Random Sampling High Dimensional Model Representation Gaussian Process

Regression (RS-HDMR-GPR) for representing multidimensional functions with
 machine-learned lower dimensional terms allowing insight with a general
method Owen Ren,a,b Mohamed Ali Boussaidi,a,c Dmitry Voytsekhovsky,b
Manabu Iharad and Sergei Manzhosd.
https://www.sciencedirect.com/science/article/abs/pii/S0010465521003325

2. Sparse High Dimensional Models in Economics by Jianqing Fan, Jinchi Lv, and
Lei Qi
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3196636/

3. Bai J, Ng S. Large dimensional factor analysis. Foundations and Trends in

Econometrics. 2008;3(2):89–163
https://scholar.google.com/scholar_lookup?journal=Foundations+and+Trends+in
+Econometrics&title=Large+dimensional+factor+analysis&author=J+Bai&author
=S+Ng&volume=3&issue=2&publication_year=2008&pages=89-163&

4. Bai J. Inferential theory for factor models of large dimensions. Econometrica.

2003;71:135–171.

https://scholar.google.com/scholar_lookup?journal=Econometrica&title=Inferenti
al+theory+for+factor+models+of+large+dimensions&author=J+Bai&volume=71
&publication_year=2003&pages=135-171&

Signature of the student Tanmay Raj

Name: Tanmay Raj

ID No:2022A1PS1680H