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Medium · data_manipulation · Quant Researcher interview question · oas, covariance_shrinkage, regularization, portfolio_optimization, data_manipulation
Sample covariance matrices are noisy, especially with few observations relative to the number of assets. Shrinkage estimators improve accuracy by pulling the sample covariance matrix toward a structured target, trading a small amount of bias for a large reduction in variance. The Oracle Approximating Shrinkage (OAS) estimator provides a closed-form optimal shrinkage intensity, making it computationally efficient for applications like portfolio optimization. Task Implement the function oas_shrin