FxPaul

Math in finance or vice versa

Archive for the ‘arbitrage’ Category

Trading task in classic mechanics

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In physics, action is an attribute of system dynamics. By definition it is a functional over trajectory or history of the system:
S = \int_0^T L\left(q(t),\dot{q}(t),t\right) dt
where L is the Lagrangian. The real beauty of such description lies in developed and well studied mechanism of equation solutions.

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Written by fxpaul

February 10, 2012 at 09:20

Correlation trading on FX

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Correlation trading is based on few simple ideas:

  1. Correlations are changing with time
  2. Correlations of pairs of 3 currencies are bounded by strict equation
  3. Correlation is bound in the interval [-1, 1]

Therefore, one may try to “buy correlation” at -1 and to “sell it” at +1.

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Written by fxpaul

November 1, 2011 at 13:04