Mastering Python for Finance - Second Edition

Elastic net

Elastic net is another regularized regression method that combines the L1 and L2 penalties of the LASSO and ridge regression methods. The cost function for elastic net can be written as follows:

The alpha values are explained here:

Here, alpha and l1_ratio are parameters of the ElasticNet function. When alpha is zero, the cost function is equivalent to an OLS. When l1_ratio is zero, the penalty is a ridge or L2 penalty. When l1_ratio ...