The tag has no usage guidance.

learn more… | top users | synonyms

3
votes
1answer
28 views

What is the effect of mean-reversion on an upper barrier knock-out call option?

Consider a mean-reverting normal model for an underlying $dX^{(1)}_t=-\kappa X^{(1)}_tdt+\sigma^{(1)} dW^{(1)}_t$, for fixed time-independent constants, $\kappa$ (mean-reversion) and $\sigma^{(1)}$ ...
3
votes
1answer
82 views

Consequence of negative mean reversion of hull white one factor model

I tried to calibrate the data for hull-white one-factor model. Sometimes, I get negative estimate of mean reversion factor after the calibration process. When I plug the negative mean reversion factor ...
0
votes
1answer
34 views

How to estimate parameters for 2 correlated Ornstein-Uhlenbeck processes with maximum likelihood?

I would like to use maximum likelihood to estimate the parameters of two correlated Ornstein-Uhlenbeck processes from empirical data. Do you have any good references for this? If you have any hints as ...
3
votes
0answers
19 views

How to optimize an arbitrage portfolio when taking into account different speeds of mean reversion?

In portfolio optimization, it is insufficient to just note the size of price deviation - that only tells the amount of profit if held to maturity. One also needs to take into account reversion speed - ...
1
vote
0answers
25 views

Quantitative Business Cycle Investing

Is there a major article or even better a comprehensive recent review article showing quantitative evidence for the existence of the business cycle and measuring the trending and mean reversion on ...
1
vote
0answers
30 views

Are there alternatives to the Box-Tiao decomposition in identifying mean reverting portfolios?

As documented in this paper, Box-Tiao decomposition (a way to decompose multiple time series into components with different speeds of mean reversion) can be used to identify mean reverting portfolios. ...
0
votes
0answers
8 views

How to fit model implied forward curve with market forward curve for Ornstein-Uhlebeck?

I have a spread option model of 2 correlated Ornstein-Uhlenbeck commodity prices that I estimate the parameters of with Maximum Likelihood. What is the formula for introducing the additional ...
0
votes
0answers
21 views

Mean reversion in seasonal ARIMA model

Hi I'm looking for some help deriving the half life from an ARIMA model. My current best model candidate is (1,1,0)x(1,0,0)[4] and I'm a little confused on this. I've read up on HL for AR(1) models ...
0
votes
0answers
24 views

Extracting mean reversion and incorporating into formula for general series

I'm looking to derive a general formula for margin reversion like Hussman has done in this article for some projections I'm doing. http://www.hussmanfunds.com/wmc/wmc100802.htm I'm not interested in ...
0
votes
0answers
102 views

variance ratio for pair-trading

I am using the variance ratio test to check whether my sequence is mean reverting in that test there is a parameter n, How in general I choose this n? or what is the meaning of this parameter? ...
0
votes
0answers
147 views

Exact value of mean reversion rate knowing terminal value of the process

Let you have the following mean reverting process: $\text{d}x_{t}=a(\theta-x_{t})\text{d}t$, where the diffusion term is absent, that is this process is not stochastic. Let you know the value of ...
0
votes
0answers
416 views

Mean Reverting Spread

I have constructed a mean reverting spread using two indexes. I know they have to be mean reverting, but when plotted side by side they are mean reverting for a little bit and then deviate and head ...