Final_1.pdf
(7.5) We now have two relationships and two values for the cointegration coeffi- cient, bringing us to the question of which val ...
data set. In fact, it has often been argued that the simplicity of the regression process is probably its most powerful feature. ...
now faced with a situation where there could be uncertainty or error in both variables. This is vastly different from the standa ...
which is the ordinary least squares procedure. The denominator term, in fact, weights each data point in the cost function to be ...
maximum liquidity price is the volume weighted average price, commonly termed as the VWAP price. We could therefore construct ou ...
then the number of times we can expect the time series to cross its equilib- rium value in unit time. Thus, the zero-crossing fr ...
be a worthwhile endeavor, we do not discuss Rice’s formula in detail. Inter- ested readers can find more specifics on this in th ...
The process works as follows: First, we get the sample small size population of time between crossings by counting the time bet ...
residual time series seems to suggest that it is indeed tradable. We now run the bootstrap procedure on it and obtain the popula ...
FURTHER READING MATERIAL Arcsine Law and Zero Crossing Levy, P. Processus Stochastiques et Mouvement Brownien. Paris: Editions J ...
118 Introduction In the discussions so far, we have established that a key requirement for pairs trading is the existence of an ...
we may encounter and the ramifications they hold in the process of design- ing trading signals. The driving principle in the des ...
spectrum, we could observe the spread at regular time intervals and put on a position whenever we spot a deviation, regardless o ...
function value. Note that the maximum occurs at 0.75s. This would be the value that maximizes the profit. Let us now consider th ...
different values of ∆, assuming that we trade exactly in the manner de- scribed. The plot of the profit against different values ...
(^3) A fine term coined by theoretical physicists in an era where the average physicist was expected to toil at the laboratory c ...
In addition to that, let us now bring into consideration the empirical ob- servation of GARCH effects in the volatility of indiv ...
pected profit is then easily calculated by multiplying the number of trades with the profit per trade. This calculation can be d ...
a threshold value is then estimated by simulating trades on the generated data. The profits thus calculated could then be used t ...
icity.Ergodicityhas a rigorous mathematical definition and proof, but for our purposes, it may be simply stated as follows: A la ...
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