Papers › Conditional Density Estimation with Neural Networks: Best Practices and Benchmarks

Conditional Density Estimation with Neural Networks: Best Practices and Benchmarks

3 Mar 2019arXiv:1903.00954archive 2025-07-28

Jonas Rothfuss, Fabio Ferreira, Simon Walther, Maxim Ulrich

Given a set of empirical observations, conditional density estimation aims to capture the statistical relationship between a conditional variable 𝐱 and a dependent variable 𝐲 by modeling their conditional probability p(𝐲|𝐱). The paper develops best practices for conditional density estimation for finance applications with neural networks, grounded on mathematical insights and empirical evaluations. In particular, we introduce a noise regularization and data normalization scheme, alleviating problems with over-fitting, initialization and hyper-parameter sensitivity of such estimators. We compare our proposed methodology with popular semi- and non-parametric density estimators, underpin its effectiveness in various benchmarks on simulated and Euro Stoxx 50 data and show its superior performance. Our methodology allows to obtain high-quality estimators for statistical expectations of higher moments, quantiles and non-linear return transformations, with very little assumptions about the return dynamic.

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