1. Take the same pair of matrices (X, y) you used in exercise 2.
(a) Derive the performance from a 10-fold purged CV of an RF on (X, y), with 1% embargo.
(b) Why is the performance lower?
(c) Why is this result more realistic?
2. In this chapter we have focused on one reason why k-fold CV fails in financial applications, namely the fact that some information from the testing set leaks into the training set. Can you think of a second reason for CV’s failure?