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## Hot answers tagged price

2

The state price vector are the prices of securities which pay \$1 if and only if that state of the world occurs. This is just a question of being able to replicate the payoffs $$\begin{pmatrix} 1 \\ 0 \\ 0 \end{pmatrix}, \begin{pmatrix} 0 \\ 1 \\ 0 \end{pmatrix}, \begin{pmatrix} 0 \\ 0 \\ 1 \end{pmatrix}$$ with payoff vectors$\vec{b} = [1,1,1]^T\$ and ...

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Regarding Joshua's inspired answer, I'm still not sure how you guarantee that scaling gives you the exact high and low values. I suppose that you could simulate until you get a result that is close enough. But that could be hard when, e.g., Open is near High and far from Low. An alternative solution is to construct a Brownian Bridge between Open and High, ...

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Following references from the answer provided by @Richard, we see that the optimality condition for a continuous process in general (and therefore an OU process in particular) is covered in Section 2 concluding on page 6 of Thompson 2002, where he also represents the solution in terms of the Hamilton-Jacobi-Bellman equations. If you change the limits of the ...

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you find theoretical results for the Ornstein-Uhlenbeck process if you search for "pairs trading". In pairs trading it is assumed that the ratio of the pair is mean reverting. Then one often models this ratio as Ornstein–Uhlenbeck process. You find something on page 11 here Further theoretical results that might be of interest can be found here. All these ...

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I think a good way to think about your problem is the example of finding an optimal VWAP trading strategy. You basically have a finite point in time by which you must have performed your transaction and you trade a similar asset than the one you are considering, one with the same underlying assumptions of mean-reversion (I make such assumption in the same ...

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In the academic literature it is extremely widely applied in the last 20 years. I would estimate maybe 200 empirical papers, or more. For example a common finding is that higher frequency (daily) wavelet correlations have been high since 2007, attributable either to increasing financial interation or the financial crisis. It is also popular to estimate the ...

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