Questions tagged [mean-reversion]
A mean reverting process is a process that, over time, tends to drift toward its long-term mean.
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OU Mean-Reverting Lognormal Process Simulation
I want to make sure that the following reasoning and simulation technique is reliable (also valid) due I'm trying to model a mean-reverting lognormal process.
The idea is to define a process
$S_t$
...
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Does it makes sense to use GARCH to measure mean reversion?
I am doing my final paper at my bachelor. For this, I am testing mean reversion in an asset. I found this paper (Mean reversion in international markets: evidence
from G.A.R.C.H. and half-life ...
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zero-crossing variant of pairs trading
The concept of zero-crossing was suggested in Does Simple Pairs Trading Still Work?, July 2010, Financial Analysts Journal 66(4)
by Binh Huu Do and Robert Faff link to paper
The idea is to select ...
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Is it possible to discretize OU with a more general AR(p) / ARMA (p,q) models?
The discrete analogue of an OU process is a simple AR(1) model. More general AR(p) or ARMA(p,q) models can also be regarded as discrete analogues of an OU process? If so, which coefficients describe ...
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Why does AR(1) model with a small coefficient exhibit faster mean-reversion than one with a greater coefficient (when |$\beta$|<1)? [closed]
Suppose we have two mean-reverting AR(1) models, given by
$$X_{t}=\beta X_{t-1}+\epsilon_t,$$
where $|\beta|<1$.
How fast series reverts to its mean is determined by the coefficient $\beta$. As far ...
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What is the common accepted/ best performed method to classify trends and mean-reversion for fixed peroid?
I have knew some strategies only work on trends peroid, and other only works on mean-reversion peroid. But I didn't find how to classify trends and mean-reversion.
I wonder the best performed/verified ...
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Determine Dependent Variable Product
Let's say I have three products that are correlated (e.g. AAPL, MSFT, and AMZN). I would like to construct a spread between these products and trade the mean-reverting spread. Specifically, sell the ...
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Converting Annual Vol to Instantaneous Vol with Mean Reversion [closed]
Options Pricing and Mean Reversion
In the question above, in the accepted answer, the writer claims:
"For instance with a 100% mean reversion a 20% historical annual standard deviation would ...
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Why aren't the optimal entry/exit thresholds for OU pairs trading relatively invariant to shifts in the OU mean?
The optimal entry/exit thresholds for mean reversion trading (assuming an underlying Ornstein-Uhlenbeck (OU) process) is derived in the paper "Optimal Mean Reversion Trading with Transaction ...
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How to predict a portfolio's reversion?
Sorry if this has been asked before. I've been baffled by a question I'm facing.
Assuming I know there are some certain demands for some stocks in near future, and I put them in a basket as a ...
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Mean Reversion without Bollinger Band
What are the ways one can trade mean reversion apart from using Bollinger Bands?
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Why do I need fancy methods to calculate half-life of mean reversion?
I am investigating ways to calculate the mean reversion half life of a mean reverting series. I am encountering things like the Ornstein – Uhlenbeck Process and various types of regression to estimate ...
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Why is my mean-reversion half-life completely wrong?
I am using a couple of resources (here and here) to calculate the mean reversion half-life of a time series. This method of calculating it is also presented in Ernest Chan's Algorithmic Trading on ...
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How to derive a pricing PDE for an asset that follows a mean-reverting process?
I want to derive a Black-Scholes type partial differential equation to price options on an asset that follows a mean-reverting process (Schwartz model).
My attempt follows the methodology of deriving ...
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Calibrating OU parameters using AR(1)
I have a mean reverting time series and want to find the Ornstein-Uhlenbeck (OU) parameters of it. I researched the internet and found that we can calibrate the model as a simple AR(1) process,
$$\...
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Estimating Ornstein-Uhlenbeck process drift
What is the easiest way to obtain a drift parameter of O-U process given I have $\mu$?
Is it ok to linearize the O-U process like so:
$P_{t} = \mu + \phi(P_{t-1}-\mu)+\xi_t$
Form vectors from historic ...
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Hull-White Monte Carlo simulation - mean reversion function
Quite new to implementing Hull white model in Monte Carlo simulation, hope to get help for 1. how to get the function $\theta$ in the following formula (the function used to match initial term ...
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Covariance of mean-reverting Vasicek process?
I am dealing with a mean-reverting Vasicek process defined as:
\begin{equation}
S_t = S_0 e^{-at} + b(1-e^{(-at)}) + \sigma e^{(-at)} \int_{0}^{t} e^{(-as)} \ W_t
\end{equation}
I want to ...
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Pairs Trading: Normalized price series (co-integrated and correlated) always end up diverging
Need some expert advice and suggestions:
I am trying out pairs trading or statistical arbitrage (as traders say). But even if two price series are co-integrated (ADF test, Hurst exponent, Ornstein–...
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The distribution of mean reversion time from the OU process
I was reading the paper Statistical Arbitrage in the US Equity Market and I couldn't understand the figure that plots the histogram of the empirical distribution of characteristic time to mean ...
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Can one successfully daytrade 0dte options based on RSI?
I've been doing that manually for 2 months successfully (40% ROI) with SPX 0-1 DTE (Days To Expiration) options, both puts and calls. I might be just lucky so I purchased some data to do backtesting ...
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What the most general but precise description one can make about mean-reversion and momentum strategies?
Is there anything about this metaphor of momentum and mean-reversion in markets that is more subtle, more general. What factors are amenable to the interpretation?
Are people almost always referring ...
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Negative values in CIR model
I'm having difficulty understanding the well known property of the CIR model that it can't go below zero. Wikipedia says that this is because the random shock on the rate will grow very small as r ...
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Pairs Trading parameters
I am looking to optimize the open/close signals and time for a pairs trading strategy my partner and I are researching. We don't want to go p-hacking so we have been trying to decide:
We have 20+ ...
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Pairs Trading situation with spread changes
I'm setting up pairs trades by summing the distances squared (SSD). After determining the best pairs, I have to track the spread between the normalized prices. Am I noticing something that is ...
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