Random Walk (student stuff)
15 Jun, 2024 at 13:22 | Posted in Statistics & Econometrics | 1 Comment.
1 Comment »
RSS feed for comments on this post. TrackBack URI
Leave a comment
-
Recent Comments
Fredrick Welfare on The psychopathy of Ayn Ra… fredtorssander on Is ethnic segregation pos… sparc55 on Everything you want to know ab… Nanikore on Everything you want to know ab… larrykaz on Everything you want to know ab… rsm on Random Walk (student stuf… Jan Milch on Sonderzug nach Pankow Nanikore on The deficit myth Anwar M Shaikh on The psychopathy of Ayn Ra… rsm on Gambler’s ruin — a… Nanikore on The deficit myth Adam on MMT — the key insig… Derek Henry on MMT — the key insig… Derek Henry on MMT — the key insig… Jan Milch on The deficit myth Reading List
Blog at WordPress.com.
Entries and Comments feeds.
LARS P. SYLL 
Lars P. Syll: “Even though all theories are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified.” (in “What is a good model?”; 10 Jun, 2024; Posted in Theory of Science & Methodology)
.
How do you qualify the falsehood that in the real world, tick and step sizes are not restricted to one unit per unit of time? In other words, can any observer of stock trades see for themselves how prices can jump by far more than the tick size, and does any one who walks realize you can take different size steps?
.
ChatGPT said: “The assumption that an object moves only one space unit in one time unit in random walk calculations is a useful simplification that facilitates theoretical analysis and understanding. It is justified in many contexts due to its simplicity and the ability to scale results. However, for applications requiring more realism or precision, modifications to this assumption may be necessary to accurately capture the dynamics of the system being studied.”
.
If you include variable step sizes per unit of time, what does that do to your nice tidy gaussian curve hallucination? If the simplifying assumption that an object can only move one unit of space in one unit of time is eliminated, will you get fat tails?
.
Why disqualify theories based on simplifying assumptions for mathematical tractability when your mood doesn’t affiliate with the result (i.e., DSGE and other mainstream models), but uphold theories with equally unrealistic assumptions (random walks) when they lead to results that you can use to sell us on your mood affiliation that financial market trading is bad, very bad?
Comment by rsm— 18 Jun, 2024 #