Final_1.pdf
Pairs Trading Pairs trading is a market neutral strategy in its most primitive form. The market neutral portfolios are construct ...
The typical modus operandi is as follows. Let us call the acquiring firm the “bidder” and the acquired firm the “target.” On the ...
basic probability formulas that the reader can expect to encounter in the course of reading the book. In terms of the sequence o ...
In the book, we will discuss two classes of pairs trading strategies; namely, risk arbitrage and statistical arbitrage. FURTHER ...
12 BACKGROUND MATERIAL APPENDIX Below are a few formulas on random variables that we are likely to en- counter throughout the bo ...
The correlation between any two random variables is always a value be- tween +1 and –1. Every random variable is perfectly corre ...
14 Overview A time series is a sequence of values measured over time. These values may be derived from a fixed deterministic for ...
chastic time series. Fittingly, their methodology for time series forecasting is referred to as the Box-Jenkins approach. In thi ...
Time Series Models The approach we will adopt in the description of time series models is to start with the special cases and ev ...
(^2) Beta in this connotation is a nondescript Greek symbol denoting a constant and has no relationship to the CAPM model. Movin ...
whenb= 0, this is the same as the white noise series. In Figure 2.2a is a plot of a time series of this type. This specific time ...
Observe that the values one time interval apart (t= 1) have in their terms one common white noise realization value (albeit with ...
however, cases where the sum of an infinite sequence of numbers is actually a finite value.^3 Let us denote the value of the tim ...
yt=et+a 1 yt–1+a 2 yt–2+...+apyt–p (2.8) It is, however, important to bear in mind that the generalized AR series is generated f ...
(2.9) We once again underscore the main point (hoping to drive it home) by quot- ing our constant refrain pertaining to Weiner f ...
standard deviation increases linearly with ). In this case, unlike all the previous cases, the variance increases monotonically ...
other time series. The other time series tend to oscillate about the mean of the series; that is, they exhibit mean reversion. T ...
(^4) Eviews, S-Plus, and SAS are some software packages that deal with time series mod- eling and forecasting. series of increme ...
criterion (sum of squared errors) for the given data. Another example of the goodness of fit measure is the maximum likelihood c ...
The Akaike information criterion (AIC) quantifies the preceding trade- off argument.^5 In general, every model with kparameters ...
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