First meeting

We discussed the following papers:

• Excerpt from "Options, Futures, and Other Derivative Securities", J. Hull


• Excerpt from "A Non-Random Walk Down Wall Street", Lo and MacKinlay


• "Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation" A. Lo, H. Mamaysky, J. Wang


• "Simple Technical Trading Rules and the Stochastic Properties of Stock Returns", W. Brock, J. Lakonishok, B. LeBaron.

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The first paper introduces the intuitive random walk model and modifies it to fit market data and yet retaining the markovian property. More on this in later posts.
The second paper tries to test the markovian property by looking at a statistical property common to variants of the generalized weiner process or probably all markovian processes, which is that $ln P_t = ln P_{t-1} + \mu + \epsilon_t where \mu is an arbitrary drift parameter and \epsilon_t is a random disturbance term, and \forall t, E[\epsilon_t] = 0 .. disturbance mean is 0.