Final_1.pdf

Applying the fact that We have πfailure=+ +()/()eSrT 0 cash ST cash. Sp p Sp p AB TT A T B 00 0=− =− γ γ 188 RISK ARBITRAGE PAIR ...

189 Introduction In Chapter 11 we discussed that the risk neutral probabilities of merger can be evaluated from the value of the ...

A comprehensive introduction to the Kalman filter is provided in Chap- ter 4. However, for sake of continuity we will summarize ...

implication is that under static interest rate conditions and a constant rate of information arrival at the market, the rate of ...

(12.5) Thus, the process of evaluating the instantaneous rate of reduction of the spread could vary depending on d, the number o ...

spread can then be evaluated on a tick-by-tick basis and the sum of squared returns on the spread could be used as a measure of ...

whereYtis the observation and htis the observation noise with zero mean and variance of. With this information we are now ready ...

Y 1 ,Y 2 ,Y 3 ,...,Yn, the measurements, and Z 1 ,Z 2 ,Z 3 ,...,Zn, the predicted val- ues from the state equation, then measure ...

This dependency on the measured and predicted states requires both the measurement model and the prediction model to be fairly p ...

and Company. The exchange ratio is 0.37. The deal was announced Octo- ber 19, 1998, and completed January 13, 1999. Notice that ...

bands in technical analysis. Trading can be undertaken when the observed spread is on the upper and lower fringes of the band. W ...

the day. The constant arrival of information assumption is probably not cor- rect under such circumstances. SUMMARY The spread o ...

APPENDIX Kalman Filter Design: Lag 1 The state equation of the Kalman filter is given as The observation equation is given as Yt ...

Multiplying the above by and evaluating the expected value, we have Kalman Filter Design: Lag 2 In order to enhance readability, ...

Now the state equation is given as The observation equation is given as The variance of Ytis calculated as described in the disc ...

Multiplying the above by and evaluating the expected value, we have Multiplying by and evaluating the expected value, we have Ka ...

the assumption being that and are not correlated. The observa- tion equation is given as The variance of Ytis calculated as desc ...

205 A Aggressive trading, 160 Akaike information criterion (AIC), 27–29 Alza Pharmaceuticals, 198 American Home Products (AHP), ...

Conditional mean, 19 Conditional variance, 19 Conservative trading, 160 Control theory, 52 Corporate events, 139 Correlation, 13 ...

H HBO and Company, 196–197 Hedge, 10, 48, 151, 161, 162 Hedge ratio, 48, 49 Heuristics approach, 86 Hewlett Packard Company (HWP ...