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Thomas... see below for what (i think) you wanted.
yes? no?
Dtrader
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-----Original Message-----
From: Thomas Stridsman <tstridsman@xxxxxxxxxxxxxx>
To: Omega list <omega-list@xxxxxxxxxx>
Date: Wednesday, December 30, 1998 12:56 PM
Subject: Random trade generator?
:Who was the gentleman that was giving away his random trade generator
:for free a couple of weeks ago?
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a friend of mine wrote this article and free software (i do not
write software or sell things or get money for telling people).
i just thought (some) of the deeper-thinkers on the list might enjoy it.
happy holidays, ano novo, etc.
dan chesler
(GIF picture attachment)
http://www.manticsoft.com/download/zbinmrkt.exe
This article and the associated software are designed to give you some
insight into the binomial model of stock price movements and the concept of
volatility. The article is a bit mathematical, but if you can do a little
algebra you should be able to follow it.
The binomial model is presented in every finance text that discusses the
theory of option valuation. It's the most widely used method for computing
the "fair value" of American-style options (contracts permitting the holder
to exercise them before expiration).
Its theoretical foundation is the famous "random walk" hypothesis, but
textbooks don't present it from that perspective. I thought it would be
instructive and entertaining to see and test the real implications of this
model, so I wrote some software to help visualize the workings and
statistical properties of a binomial market.
It's a simple model, driven by a uniformly distributed random number
generator, with straightforward statistical properties and no "market logic"
or intelligent trading agents. Yet it generates displayed remarkably
market-like price behavior, and not just in broad statistics. Long- and
short-term price runs and cyclical movements appeared plainly in the graphs,
which are much more realistic-looking than I'd expected. As the graph below
illustrates, even the long- and short-term moving averages have a
surprisingly realistic appearance, at least to the "naked eye". Why do price
series derived from random numbers exhibit so much apparent structure?
The answer is that the binomial model inevitably produces a kind of
non-periodic, cyclic price motion. Prices in a binomial series are more than
random points with a certain statistical distribution, even though a random
number generator helps produce them. Like real market prices, each binomial
price is related to other, recent prices, and carries an implicit forecast
about the rate of change and size of future price movements.
Binomial cycles result from a particular process of price movements, and the
binomial process is a reasonable description of some aspects of real
markets. To the extent that it reflects reality, it must contribute to the
cyclical patterns we see in real stock prices. It may even be possible to
distinguish this inherent, non-periodic cyclicality from meaningful changes
in a stock’s price behavior.
This mathematical experiment demonstrates that statistics by themselves can
be rather weak tools for characterizing market behavior. To really
understand markets, we will have to model and understand the underlying
processes which produce the price movements we observe.
Picture Attachments:
Attachment Converted: "c:\eudora\attach\binmrkt.gif"
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