Solution: Classifying Market Regimes with a Toy Network
Solution
Use lagged return and realised volatility as features, and label high-volatility negative-return periods as stress. Split chronologically so the test set occurs after the training set.
Takeaways
- State the assumption that makes the method valid before trusting the result.
- Connect the computation back to the finance workflow, not only to the code.
- Check whether the result depends on average-case behaviour, validation design, or numerical safeguards.