Dembo Notes

R Markdown

1. Monitors returns with multiple change-point engines (pick any subset you like):

• bcp (Bayesian change points; posterior probs),
• changepoint (PELT on mean/variance),
• ecp (Matteson’s non-parametric energy change points).

2. Fires a hedge signal only when disturbance is detected (you control thresholds).

3. Sizes the hedge with EVT (evir) on the left tail (losses), then applies Dembo’s minimax-regret rule:

\[ \alpha^*=\frac{G}{G+D},\qquad R^*=\frac{GD}{G+D} \]

• Keep full exposure and buy puts to cover \(1-\alpha^*\) (insurance view), or
• Scale down exposure to \(\alpha^*\) (fractional bet view).

4. Translates to contracts for SPY / XJO / ETF puts given a delta & contract multiplier.