Box-Jenkins Model
Categories: Derivatives, Trading, Metrics
The Box-Jenkins Model (also known as ARIMA Autoregressive Integrated Moving Average) was named for its creators George Box and Gwilym Jenkins, who designed this mathematical model to analyze trends and forecast data in 1970.
It forecasts using the three principles of autoregression (p in formula-speak), differencing (d), and moving average (q).
Autoregression tests for stationary data. If the data is not stationary, it would need to be differenced. The moving average is also found. The model is often used to forecast security prices for periods of less than 18 months (considered a short-term investment).
If you're thinking that sounds super dull, you're, uh...not alone. This model wasn't actually very popular with the business community because, well, it took too long and was too complicated. The longer the method was known, though, it gradually won people over, and now it's used in software programs like Forecast Pro.
Granted, the software picks the appropriate model, so people must still be assuming it's too complicated...but it's still in use and has been since 1970, so...that's saying something.
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]