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Sorry for the Dutch language Sebastian but this is more or less how I see it. Perhaps something for an AFL formula. On the Y-axis the difference between 10 Year Treasury and 3 month T-Bill. On the X-axis the FED rate. Plots above the blue line have a probability of less than 50% and below the blue line are higher than 50%. Of course you can try to calculate the probability of a recession but ...
Ton.
----- Original Message -----
From: sebastiandanconia
To: amibroker@xxxxxxxxxxxxxxx
Sent: Wednesday, February 07, 2007 7:20 PM
Subject: [amibroker] Need some math help to code NORMSDIST into AB.
I came across what I consider to be a valuable stock market/economic indicator, the Wright Model "B" yield-curve indicator. Using this formula in Excel:
Probability = NORMSDIST(-2.17 - 0.76 x S + 0.35 x R)
where "S" is the spread (10-Year Treasury yield minus 3-month T-Bill yield) and "R" is the Fed Funds rate, it gives the probability of economic recession within the next 4 quarters. (Only about 44% right now, so there's some good news. I envision using this as a market-exit indicator, warning when conditions are about to turn really ugly for both the stock market and the economy. )
This formula:
Z(x) = (1/(sqrt(2*pi()))*exp(-x^2/2))
appears to be the actual math represented by the NORMSDIST function. I believe AB supports all the operations in this formula.
My problem is that I'm not math-savvy enough to make the leap from here to turn this into a complete AB formula. I don't know what operation the NORMSDIST formula performs on the Wright Model part, I don't know what the "x" variable is supposed to be...there's no end to what I don't know.:)
Any help from my superiors in the math field (undoubtedly a VERY large club) would be greatly appreciated.
Luck to all,
Sebastian
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