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Thanks for the response, but I've already put together an indicator
based on your idea. It looks just like a regular yield spread (10-Year
yield minus 3-month yield), only with the zero line adjusted for the Fed
Funds rate as per the Wright Model formula.
The problem is that at the 50% probability level (the zero line on the
indicator) there are too many false-positive signals, it's not until the
probability gets up into the mid-60% range that recession becomes a real
threat. That's why I'd like to be able to calculate the actual
probability percentages.
In looking at the math more closely, though, I have to say that I
honestly didn't understand how difficult a problem this was when I asked
for assistance. I assumed that it was just a question of combining the
two formulas I provided and I just needed a little conceptual help to
get over the hump, but it's far more involved and I know now that it was
too much to ask.
There are two simpler workarounds, though. One, calculate the
probabilities in Excel, import them into AB as a fake ticker and refer
to them using Foreign() when creating buy/sell rules. And two, optimize
the zero line or the levels on the indicator I already have.
Luck,
Sebastian
--- In amibroker@xxxxxxxxxxxxxxx, "Ton Sieverding" <ton.sieverding@xxx>
wrote:
>
> 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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