New fundamental applied math result for Wall Street | LinkedIn

The fundamental result from section 2, the fact that E[M(n)] = SQRT(n/2), has important consequences for Wall Street traders. Basically, it means that the highest value a stock, index or commodity will reach (on average), during a period of n days, is

Max price = exp{c*SQRT(n)} / P,

where c is a coefficient depending on the commodity or stock in question (it’s higher for volatile stocks), and P is the value of the commodity or stock in question at the beginning of the time period in question.


You must have a diversified portfolio with many stock clusters or indices that are (1) not too volatile and (2) un-correlated. Assumption (2) needs careful analysis. This is required, because the result essentially applies to portfolios, not individual stocks.

See on Scoop.itData Nerd’s Corner

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